The Euro's Decline Is Re-flating UK Inflation

This morning the UK printed a big inflation report with a +4.4% increase in CPI for July. The Euro has dropped almost -7% in less than a month, and its weakness begets strength in imported inflation. Considering that commodities deflated in July, this number came in higher than I expected.

The Bank Of England's "targeted rate" of inflation is 3% - so this is not good. As you'll see from the chart below, this picture definitely does not let the British out of the box. As they dip into a recession, they will not be able to cut interest rates, unless inflation dampens from these highs.

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Chart by Andrew Barber, Director