UK inflation accelerated in August

Khatija Haque - Head of Research & Chief Economist
Published Date: 16 September 2021


  • UK inflation rose by more than expected in August, up 0.7% m/m and 3.2% y/y.  Core inflation accelerated to 3.1% y/y from 1.8% in July. While most of the jump in the annual rate of inflation is due to a low annual base, some has been due to re-opening effects which is evident in the sharp rise in prices of new and used cars and restaurants and hotels. The Bank of England’s 4% end of year inflation forecast could be reached, but price growth is likely to slow in 2022.
  • UK PM Boris Johnson reshuffled his cabinet yesterday, replacing beleaguered foreign secretary Dominic Raab with Liz Truss (formerly international trade secretary). The education, justice and communities secretary were all replaced, with Raab becoming the new justice secretary. Michael Gove was promoted to housing secretary and will be responsible for carrying out the PM’s “levelling-up” campaign promise. Separately, the Financial Times reported that the UAE will invest GBP 10bn in the UK over the next five years, including in infrastructure, technology, and clean energy projects.
  • In the US, the empire manufacturing index came in well above expectations at 34.3 pointing to a strong September for factory activity in New York state.  Price pressures still remain elevated, however.  Overall industrial production in the US rose by 0.4% m/m in August, slower than the 0.8% rise in July and a touch lower than expected. US retail sales for August is the key release today.
  • Japan’s export growth slowed sharply in August to 26.2% y/y from 37.0% in July and much lower than the market had expected.  This was attributed to a decline in auto exports as a result of supply chain problems as well as softer demand due to the coronavirus. Import growth accelerated to 44.7% y/y from 28.5% in July resulting in a trade deficit of JPY 635.4bn.

Today’s key economic data and events

  • 16:30 US retail sales forecast -0.7% m/m prev. -1.1% m/m
  • 16:30 US initial jobless claims (Sep 11) forecast 323k prev 310k
  • Egypt overnight deposit rate, %. Forecast: 8.25%

Fixed Income

  • US Treasuries sold off later in the session in line with a broad recovery in risk assets. US data came in mixed, with a disappointing industrial production number offset to a degree by better-than-expected regional data from the Empire Manufacturing index. Yields on the near end of the curve edged up less than 1bp to 0.2111% while the 10yr UST added more than 1bp to 1.2988.
  • Gilt yields were the biggest gainer overnight thanks to a much-stronger-than-expected UK inflation number. The 10yr gilt yield added 4bps and is now encroaching on 0.8% again having added more than 20bps in the last 30 days. The Bank of England meets next week with some growing expectation that the MPC could take a more hawkish tilt in its commentary, if not yet in its action.
  • Emerging market bonds held to narrow ranges overnight with 10yr Turkish government bond yields adding just 1bps to 16.51%. Indian yields fell 3bps on the 10yr to 6.168% while South African yields rose nearly 4bps to 9.271%.  


  • A risk-off tone took the dollar lower overnight, albeit marginally. The DXY index fell a second day running but by less than 0.1% to 92.548. The dollar’s short-term moves still appear motivated by risk on/risk off sentiment more than fundamentals like expected yield differentials. EURUSD added 0.12% to settle at 1.1817 while JPY was the largest gainer among G3 currencies with USDJPY falling 0.28% to 109.38. Sterling added 0.22% to push up to 1.3840.
  • Commodity currencies benefitted from the change in risk appetite with CAD leading the way. USDCAD fell 0.5% to settle at 1.2630 while AUD and NZD gained 0.18% and 0.11% respectively. Inflation in Canada rose to 4.1% y/y in August, well above the Bank of Canada’s upper target of 3% and the highest gains since Q1 2003.


  • US equities recouped some recent losses yesterday, with all three major indices closing higher as the latest inflation print made a September taper less likely. The S&P 500 was the biggest gainer, adding 0.9%, followed by the NASDAQ with 0.8% and the Dow Jones with 0.7%. All three are lower than they were a week previous however, and only the NASDAQ is higher than it was a month ago, as growth concerns have come to the fore.
  • Things were less positive in Europe where there were losses across the board. The FTSE 100 lost -0.3%, the DAX -0.7% and the CAC -1.0%. All major European equity indices are down m/m and compared to three months ago.
  • There were gains in local markets. The DFM added 0.2%, the Tadawul 0.3% and the ADX 0.8%. The EGX 30 lost -0.3%.


  • Oil prices rallied strongly as the market remains supported by disruptions caused by hurricanes in the US. Brent futures added 2.5% to USD 75.46/b while WTI added more than 3% to settle at USD 72.61/b, its highest level since the end of July.
  • US oil inventories fell sharply last week with a drop of nearly 7m bbl while gasoline stocks fell almost 1.9m bbl. Total commercial petroleum stocks fell 8.8m bbl as hurricanes Ida and Nicholas disrupt production and pipeline infrastructure. Production managed to edge up slightly by 100k b/d to 10.1m b/d, still well below average levels for the year.
  • Industrial commodities were well supported with gains across aluminium and copper prices despite disappointing data coming out of China. Iron ore, however, extended its slump and has fallen six days in a row. Gold prices edged lower overnight, falling by 0.6% and settling below USD 1,800/troy oz.

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