Inflation in the UK returns to zero in August

Enrique Díaz-Álvarez16/Σεπ/2015Currency Updates


Sterling traded within a narrow band following the release of the latest inflation data yesterday before trailing off to end the session 0.3% lower against the Greenback.

Inflation in the UK economy officially returned back to zero last month according to the Office for National Statistics. Consumer price growth was flat from a year previous, having increased by just 0.2% on July. A decrease in oil prices, registering its largest fall since the start of the year, and a smaller than expected increase in clothing prices were the main driving forces to ensure overall price growth in the economy remained around zero for the seventh consecutive month. The rate of core inflation dipped to 1% as expected, with supermarket price wars also continuing to weigh on consumer prices.

Inflation is expected to remain low for the next few months, having dipped into negative territory recently for the first time in decades. Such stubbornly low inflation is one of the reasons why the Bank of England is unlikely to begin hiking interest rates until early next year at the very earliest. Meanwhile, house price growth decreased below forecast to 5.2% expansion in the year to August, with prices in London surprisingly increasing by less than the rest of the country.

Today will see another busy morning of releases from the ONS with the latest labour report. Wage growth figures will be the main focus for Sterling, accompanied by the unemployment rate for June, expected to remain unchanged at 5.6%.


Despite the release of more encouraging trade data in the Eurozone, the single currency ended lower against the Dollar yesterday, down by 0.2% during the London session.

The trade surplus in the Eurozone swelled above forecasts in July to a new record high level. The overall balance of trade came in at 31.4 billion Euros, above the 28 billion Euros mark registered a month previous. A one percent increase in imports was more than offset by a seven percentage point rise in the value of exports, and bodes well for future economic growth if the trend can be maintained.

However, in contrast the closely watched ZEW economic surveys disappointed forecasts, with Germans in particular turning increasingly pessimistic about their country’s economy. The main index that measures economic sentiment fell by almost fifteen points in the Eurozone to 33.3, with the index for Germany plunging to its lowest in almost a year at 12.1. Weakening prospects for global growth fuelled by a slowdown in China continues to dent confidence in the Euro-area.

The focus in the Eurozone today will be at the latest inflation figures for August from Eurostat at 10am London time.


The US Dollar continued to remain steady yesterday ahead of Thursday’s Fed meeting. The US Dollar index increased by 0.3%.

The main data point of the day was retail sales, which provided little in the way of major market movement given its likely limited impact on Thursday night’s decision. Sales in August rose, although came in slightly below expectations at 0.2%. This modest expansion marked the second consecutive month of positive growth, following the unexpected decline in sales in June. Core retail sales, of which exclude the sales of autos, increased by an almost negligible 0.1%.

Meanwhile, industrial production in the US also remained weak in August. Output in the sector surprised on the downside, decreasing by 0.4%, its largest drop since March. This does not bode especially well for economic growth in the third quarter. Capacity utilisation, a measure of US production capacity used in the short term, also underwhelmed, decreasing by 0.4% to 77.7%.

Similarly to the Eurozone, we’ll have the latest inflation figures in the US at 2.30pm this afternoon. However, build-up to this Thursday’s FOMC meeting will continue to dominate trading across the pond today.

Rest of the world

The Japanese Yen gained ground versus the Dollar yesterday after the Bank of Japan left its monetary policy unchanged, opting not to increase its stimulus program despite the recent global economic slowdown and stagnant inflation.

Australia’s Dollar also held steady following the swearing in of new Prime Minister Malcolm Turnbull.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.