Producer prices in Britain jumped by 3.4%. Britain’s PPI Input was expected to rise by 1.6%, after 0.9% last month. The whopping 3.4% rise is another significant sign that inflation in Britain isn’t cooling – the central bank will probably raise the rates sooner than later.
The reaction is currently limited-  GBP/USD is still within the same narrow range – 1.5820 to 1.5860. Significant resistance appears at 1.5910, and it’s followed at 1.60. Minor support is at 1.5820 and 1.5720. For more levels, see the GBP USD forecast.
Click the graph to enlarge
GBP/USD already broke the stubborn 1.5650 line earlier in the week. This came after manufacturing production came out stronger than predicted, and especially as fresh hopes of a resolution to the European debt crisis emerged – bond auction in Spain, Italy and Portugal were good, showing that the Chinese and Japanese support for Europe, plus solid demand from other places is seen.
Stronger confidence pushed the Euro and also other currencies, including the pound, higher against the US dollar.
Regarding Britain, there are already talks about two rate hikes in 2011. Also Mervyn King, the governor of the BoE, expressed concern about rising inflation – he was disregarding it for a long time. After the president of the ECB, Jean-Claude Trichet, also focused on inflation, it seems that this will be the trend in 2011.
There’s already one member of the MPC, Andrew Sentance, supporting a rate hike. He’ll probably get more support. Yesterday, the MPC decided to leave the rate unchanged for another month, but we still don’t know if an additional member voted for a hike, apart from Sentance.
Next week, we have the more important inflation figure – CPI. The consumer price index refuses to drop below 3%, for almost a year. Despite falls in Core CPI under this level, the key figure remains higher.
Will we see a rate hike in Britain soon?
