UK Inflation pressures boosts Sterling

With very little by the way of data out yesterday, UK inflation is back in the headlights. The Governor of the Bank of England will by now have sent a third letter to Chancellor George Osborne, explaining why inflation is twice as high as it should be and what his plans are to do about it.

The consensus among investors is that today's consumer price index (CPI) will show inflation is about 4% higher than a year ago and show the retail price index (RPI) to have risen by more than 5%. The argument is well-made that increasing interest rates to lower inflation is useless in fighting the effects of imported inflation and tax increases. 

However, the longer inflation remains high, the more it is likely the Bank of England's hand will be forced. As far as investors are concerned though, the Bank is going to do something and a high inflation number this morning will make a rate increase more likely and more imminent. 

In the Eurozone, it's GDP day. Figures for gross domestic product in the fourth quarter of last year have already shown shrinkage of -0.3% for Portugal and growth of 0.4% for Germany and France. The best guess for the Eurozone as a whole is around 0.4% growth. Despite recent weak German and French data it is unlikely the GDP figure will mirror the UK and go into negative territory.