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Surprise jump in UK inflation figure

Surprise jump in UK inflation figure

British inflation hit a five-month high in October following a rise in university fees and food prices, making it less likely the Bank of England will flag more stimulus when it presents new forecasts tomorrow. The jump in consumer price inflation to 2.7 per cent from 2.2 per cent in September – the biggest increase in more than a year – also puts in doubt a much hoped-for revival of consumer spending because wages are rising at a much slower pace. Sterling rose and British government bonds dropped after the data were released.

The euro hovered near a two-month low on Wednesday, hurt by uncertainty over Greece and weak German economic sentiment data that highlighted the growing pain in stronger European economies from the region’s protracted debt crisis. The euro edged up 0.2 percent to $1.2722, but was still not too far from a two-month low of $1.2661 set on Tuesday, when the euro slipped on a weak German ZEW sentiment survey.

A German newspaper said Germany wants to bundle Greek aid into a single payment of more than 44 billion euros and German Finance Minister Wolfgang Schaeuble later also said such an idea was under consideration. Still, that cannot happen until its lenders reach a broader agreement, and the International Monetary Fund and euro zone policymakers remain at odds over a long-term target to bring Greece’s debt down and the IMF’s push for the euro zone to take further losses on Greek debt.

GBP/USD outperformed its peers today, after the latest CPI report, which came in above the median consensus estimate prompted market participants to re-assess their expectations of more policy easing from the BoE. The release came only a day before the eagerly awaited Quarterly Inflation report by the BoE, which is expected to see the MPC revise lower GDP projections and remain open to a possibility of more QE in the future.

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