Sterling Markets Are Cruising for a Bruising
UK government bonds look vulnerable to rising inflation and increased supply.
UK markets are in for a bit of a battering in the coming months.
Photographer: Paul Faith/AFP
Ouch. Double-digit inflation has arrived in the UK with consumer prices rising at an annual pace of 10.1% in July, a 40-year high. It's a game-changer: Britain becomes the first G7 country in the current economic cycle to breach this psychological hurdle, making it that much harder to defend the underlying economy against inflationary expectations becoming embedded.
UK inflation may dip in the next couple of months, with petrol prices falling as crude oil dips below $90 a barrel. But the Bank of England will have to look through this, as a rise in the energy-price cap in October will drive annual inflation above 13% by the end of the year. With official rates only at 1.75%, after six consecutive hikes, the Monetary Policy Committee is hardly on top of the situation when inflation is running at more than five times its 2% target.