LONDON, July 19 (Reuters) - British inflation came in at its slowest pace in over a year in June, denting the pound against other currencies. But at 7.9% it was still well above the Bank of England's target rate.
Economists polled by Reuters had forecast that the CPI rate in the 12 months to June would drop to 8.2% from May's 8.7%, moving further away from October's 41-year high of 11.1% but still far above the BoE's 2% target.
MARKET REACTION:
STOCKS: FTSE 100 futures rose by as much as 0.8% to their highest in 10 days, suggesting an upbeat open for the benchmark index later on.
FOREX: The pound fell by the most against the dollar this month, dropping by as much as 0.8% to $1.2934, but still within sight of last week's 15-month high of $1.1344.
COMMENTS:
JEREMY BATSTONE-CARR, EUROPEAN STRATEGIST, RAYMOND JAMES, LONDON:
"Today’s fall in CPI inflation is a small step in the right direction for the UK economy, but high wage growth and stubborn underlying prices show there is still a long journey ahead to drag inflation back down into more stable territory.
"With the inflation rate checking in at 7.9%, the June data has not delivered any nasty surprises, but prices still remain too elevated for the Bank of England to sit back and relax.”
KENNETH BROUX, HEAD OF CORPORATE RESEARCH FX AND RATES, SOCIETE GENERALE, LONDON:
"Good news at last for UK inflation. Below forecast headline and core. Crucially, services eased to 7.2% from 7.4%. It's still too high but a step in the right direction. It diminishes the likelihood of +50bp in August but certainly cannot be ruled out.
"Profit taking in sterling as a result should not be a surprise as we expect Gilt yields to come down versus U.S. Treasuries and Bunds. The pound was overbought after the run-up in recent weeks."
JOSEPH CALNAN, CORPORATE FX DEALING MANAGER AT MONEYCORP, LONDON:
"It's a relief to see today's CPI data finally falling again - and quicker than forecast - but the UK economy is still in a troubling position. Both headline and core inflation are still well above comfortable levels, and that’s on top of the record 7.3% wage growth announced last week.
"Looking to currency, these overshoots and economic signals have been a core driver of FX markets over the past 6 months. The ONS releases from March to June have closely matched the pound’s meteoric rise from below $1.20 against the U.S. dollar to over $1.31. Once inflation eases off, if the drop is sharp enough, we will likely see the pound falling with it - so we need to be prepared for that, too."
NEIL BIRRELL, CHIEF INVESTMENT OFFICER, PREMIER MITON INVESTORS, LONDON:
"Some good news on UK inflation at last, coming in below expectations for June and most importantly the core inflation rate fell more than thought. Although we should expect it to track down further and it may be at its lowest level for a year, it is still high in absolute terms and the Bank of England needs to be vigilant and act accordingly until there can be a level of certainty that inflation is back under control." (Reporting by EMEA Markets Team; Writing by Amanda Cooper; Editing by Andrew Heavens)
