The CPIH measure, now an official statistic again as of 31 July, also held steady at 2.6%. Stripping out the volatile food, energy, alcohol and tobacco components it was the same story with core inflation holding at 2.4%. This of course disappointed the market and helped Sterling close below 1.2900 and 1.1000 against the USD and EUR respectively. Will we see any support for Sterling today as the equally important wage inflation figures are released this morning?

Although we expect CPI inflation to rise a bit further over the months ahead, the end of inflation’s ascent now looks in sight. However it will, in all likelihood, track relatively slowly back towards target. With no sign of pay growth suddenly accelerating, it looks to be the case that the squeeze to household real spending power will remain present for some time and certainly through the remainder of this year. At its August Inflation Report the Bank of England played for time, putting off any crunch decisions on the stance of monetary policy until next year as it ponders on a few questions. Issues under review include how the household cash squeeze evolves and how the consumer backdrop fares in the face of this squeeze. There is also the question of how business investment evolves as Brexit negotiations continue on, and how much offset we see from the UK’s export focused producers faced with solid global demand.

The second Brexit position paper was released today with the Government outlining how it hopes to maintain a "frictionless and seamless" border between Northern Ireland and the Republic when the UK leaves the customs union. That follows the customs union paper on Tuesday which recommends proposals such as spot vehicle checks and the use of number plate recognition technology instead of physical infrastructure like customs posts. Ireland's Prime Minister Leo Varadkar had urged Theresa May to remain in the customs union to prevent the need for excise and duty checks at the land boundary. But London will suggest that under a new customs partnership it has already proposed there would be no customs border at all between the UK and Ireland.

Across the pond, retail sales recorded their biggest increase in seven months in July as consumers boosted purchases of motor vehicles and raised discretionary spending, suggesting the economy continued to gain momentum early in the third quarter. Retail sales jumped 0.6% in July. June and May also were revised higher, which should help to assuage concerns about consumer spending after a slowdown at the start of the year. Yesterday’s upbeat report from the Commerce Department likely keeps the Federal Reserve on course to raise interest rates again in December. The report helped to shift investors' attention from recent weak inflation data as markets try to forecast the Fed's next policy move. The U.S. central bank has raised rates twice this year and economists expect it will announce a plan to start unwinding its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September.

The day ahead

UK labour market data is released this morning at 09:30, with average earnings and the unemployment rate expected to show the same as previous, 1.8% and 4.5% respectively. EU Q2 GDP is released at 10:00, any improvement against the expected 2.1% yoy growth rate would help continue the recent Euro rally. This evening the FED releases its minutes from its July meeting, investors will be monitoring the language closely looking for clues as to when the FED will start to unwind its balance sheet, their concerns on inflation and whether they are still on track to raise rates for a third time in 2017. Bearish bets on the currency have risen to the highest level in more than 3 years as doubts have grown over whether the FED will in fact raise rates again this year.

Thought of the day

Earlier this year a bakery thought it might be a good idea to put salmon and seaweed inside croissants. Now somebody’s gone and combined a Cornish Pasty concept with Sushi. A troubling premise, you might suggest? Are we slipping raw fish into buttery pastry again? No. Chandra Gilbert has instead simply enveloped sushi ingredients inside a nori seaweed casing, which is shaped like a pasty. She's crimped it. But that's where the link ends, really. A loose connection. This is evidence that not all plans and ideas are quite as good as they seem on paper. With the pound on the back foot and falling below 1.10 versus the euro, people may well be evaluating the plans they have in place for their currency albeit with the current economic outlook the forecast looks uncertain making that a tricky proposition. If you would like to discuss your strategy in light of the current market conditions in more detail please call the Investec Dealing Desk on 0800 055 6339.