Pound falls on inflation

Traders sold off the pound today as inflation hit a surprise four-year low, giving the Bank of England more breathing space to keep interest rates low.

The Consumer Price Index’s fall to 2.1 per cent in November — the lowest since November 2009 — immediately sending sterling down 0.4 cents against the dollar.

The Bank will not consider interest rate rises until unemployment falls to 7 per cent under forward guidance — but easing pressure on the cost of living lessens the chances of the inflation “knock-out” for the guidance being triggered.

Dealers are eyeing the latest decision of the US Federal Reserve, due tomorrow, where rate-setters could decide to taper the stimulus programme of $85 billion (£52.2 billion) a month. CMC Markets analyst Michael Hewson said: “We’ve seen selling pressure on sterling today but there won’t be major moves until after the Fed’s decision.”

Economists warned that today’s fall in the CPI would be a temporary respite as gas and electricity prices kick in for December’s figures. BNP Paribas economist David Tinsley said: “Part of the fall in the headline rate looks to reflect timing — with the collection data on 12 November, all of the utility bill hikes coming into the data were missed, including one coming in from the 15th.”

The euro strengthened as figures revealed the first jobless fall in for almost three years and a slight rise in inflation to 0.9 per cent, slightly ahead of expectations.