The BOE is slowly being pushed into a corner
The latest report shows that UK annual inflation jumped up to +3.2% y/y in August, the highest since March 2012, amid a record increase in the annual percentage on the month.
While that in part may be due to base effects, it doesn't tell the whole story.
The "eat out to help out" scheme in the summer last year put considerable downwards pressure on prices, contributing to the 1.2% jump in annual inflation in August this year.
However, when you look at the monthly readings, there's also a jump of 0.7% in consumer inflation from July to August (both on the main and core readings) so that tells the story that the jump isn't entirely due to base effects.
There may need to be some time to sort this out but the overall increase in producer prices also suggest that rising cost pressures globally are translating to higher inflation in the UK, something that is transpiring in other economies as well.
So, what does that mean for the BOE and the pound?
The central bank is slowly being cornered into a decision to tighten policy here and it is tough to see them fight against that, especially with the UK having been among the leaders in the vaccination race and the reopening plot.
A rate hike may not be imminent but a shift towards being 5-4 (or more) in terms of believing that the minimum criteria for tighter monetary policy has been met would be a good start in getting pound bulls more excited once again.
The BOE will be meeting next week and all eyes will be on whether or not there will be more hawkish undertones to follow, and I'd say that it isn't entirely out of the equation to expect such a shift considering the circumstances.
But I'd expect policymakers to make clear that this doesn't mean it will lead to a concrete footprint towards raising rates in Q1 or Q2 next year just yet.