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Home > News > Pound drop...

Pound drops as inflation falls to five-year low

The pound has slumped on news inflation fell to just 1.5% in August, further undermining any calls for an imminent interest rate rise.

The pound dipped to $1.613 on the news, before mounting a small recovery to $1.6171. However, it has remained above the $1.6069 level seen last week, its lowest point in nearly a year, as fears over Scottish independence gripped investors.

‘With inflation at a five-year low, it is difficult to see why the Bank of England should even consider raising interest rates at present,’ said Ben Brettell, senior economist at Hargreaves Lansdown, the investment supermarket. ‘We are faced with uncertainty around the Scottish referendum, and there are signs the economy is slowing somewhat, with UK manufacturing activity growing at its slowest rate in 14 months in August.

However, the Bank of England will also contend with fresh evidence of a surging housing market. Separate data from the Office for National Statistics showed the official measure of UK house prices was up 11.7% on a year ago in July, the fastest rate of increase for seven years.

‘The housing market will remain something of a concern to the Bank of England, where a further marked jump in prices on a year ago will add to worries that the property market poses a key risk to financial stability, and that macro-prudential tools may be insufficient to cool the housing market without an accompanying rate hike,’ said Chris Williamson, chief economist at Markit.

The FTSE 100 fell 35 points, or 0.5%, to 6,770, with Thursday’s Scottish independence referendum continuing to weigh on sentiment.

ARM (ARM) was among the biggest fallers, as the Apple supplier was hit by an underwhelming launch for the iPhone 6. Shares fell 1.8% to 921p.

Publishing group Pearson (PSON) was meanwhile the biggest riser, jumping 2.2% after analysts at Morgan Stanley upgraded the stock to ‘overweight’.

Shares in AIM-listed Asos (ASOS) meanwhile  tumbled after the online fashion retailer warned of flat profits in its next financial year.

Asos fell 11.5% to £21.48 as it reported slowing sales in the fourth quarter of a difficult year. Sales increased by 15% to £240 million in the three months to the end of August, down from a 25% rise in the third quarter.

Asos has endured a torrid 2014, with its shares down by around 65% since the turn of the year. The company issued a profit warning in June, prompting a 30% slide in a single day, and suffered a fire at its main warehouse.

The company said investment in its international pricing and proposition would prevent profits from growing in the 2014/15 financial year.

On the FTSE 250, Thomas Cook (TCG) fell 5.1% to 123.3p as the travel agent warned of difficulties in its German market.

The oil price meanwhile looks on course to register its biggest quarterly loss since in more than two years. Brent crude is trading at $97.8 per barrel, and is down around 13% over the quarter, as weaker than expected economic data from the US and China took its toll.

 

Source: Citywire

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