British Pound fluctuates as UK inflation exceeds forecasts and public debt edges higher

• GBP/USD fluctuated near 1.3475, having failed on Tuesday to clear one-month highs at 1.3400.
• September’s UK inflation exceeded forecasts, reinforcing the case for the BoE to raise interest rates next month.
• Higher UK government borrowing may have counteracted the support for the Pound.

Stronger-than-forecast UK Consumer Price Index (CPI) figures and another rise in government debt left the British Pound (GBP) fluctuating against the US Dollar (USD) on Wednesday. After touching a session low of 1.3364, GBP/USD recovered towards 1.3375. The pair continues to consolidate the gains of recent days, having been unable to establish itself above 1.3400 on Tuesday.

September’s UK Consumer Price Index (CPI) increased by 0.4%, National Statistics reported. Although slightly below August’s 0.5% rise, the reading exceeded market forecasts of 0.3%. On a year-on-year (Y-o-Y) basis, CPI growth quickened from 3.1% in August to 3.5%, beating the market consensus of 3.4%.

Excluding volatile food and energy prices, core CPI also surpassed expectations. The Y-o-Y rate reached 2.8%, compared with a market consensus of 2.7% and August’s 2.6% increase.

UK government borrowing rises again in September

Released alongside the inflation figures, National Statistics data showed UK Public Sector Net Borrowing climbing from GBP 17.25 billion in August to GBP 24.52 billion in September. Renewed concerns over the UK’s high public debt may have followed, weighing somewhat on the Pound.

Tuesday’s unexpected fall in the ILO Unemployment Rate to its lowest in more than a year preceded Wednesday’s releases. Together with last week’s encouraging Gross Domestic Product (GDP) figures, the data have reinforced market expectations of a possible Bank of England interest rate increase at its 5 November meeting.

Following five days of selling, the Dollar Index (DXY) is recouping part of its losses, with the US Dollar modestly firmer on Wednesday. A pause at next week’s Federal Reserve (Fed) monetary policy meeting is already priced in. Meanwhile, concerns over high oil prices, against a backdrop of uncertainty surrounding the Middle East conflict, continue to draw safe-haven flows into the Greenback.