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Pound tumbles after inflation surprise

The pound has fallen by its largest margin since March after inflation declined more than economists expected.

Sterling has dropped 1pc toward $1.29 after hitting 15-month highs of more than $1.31 last Thursday.


It comes after official figures showed inflation in the UK fell to 7.9pc in June, which was down from 8.7pc in May and below economists’ predictions of a drop to 8.2pc.


It has prompted a dramatic day on markets, with traders cutting bets on the peak for interest rates to 5.75pc from 6.25pc on Tuesday.


That has in turn impacted the value of the pound and sent Government borrowing costs plummeting in a boost for mortgage holders.


Barclays strategist Emmanuel Cau said: “The strength in the pound was due to higher inflation pushing rates expectations up and growth expectations down.


“So today’s weaker-than-expected inflation print is arguably a relief, which should lift sentiment on the depressed domestic plays and rates plays.”


Samuel Tombs, chief UK economist at Pantheon Macroeconomics, called the figures “a watershed moment.”


He said: “We continue to think that the worst is over for UK households and that the MPC will not need to raise Bank Rate all the way to 6.25pc, as markets priced-in yesterday.”


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