The pound hovered close to a nearly three-year low on Wednesday before July inflation data with concerns of a no-deal Brexit dogging investor sentiment. Against the dollar, the pound was steady at $1.2056, just above a low of $1.2015 hit on Monday, its weakest since a currency flash crash in October 2016.
However, the pound ticked up to $1.21 after Britain's inflation rate unexpectedly overshot the Bank of England's 2% target on Wednesday, raising the cost of living even before sterling's recent slide has had a chance to feed into consumer prices.
Prices rose at an annual rate of 2.1% in July after 2.0% consumer price inflation in June, the Office for National Statistics said, bucking the average expectation for a fall to 1.9%
Inflation surged after sterling fell more than 10% in the wake of June 2016's referendum decision to leave the European Union, peaking at a five-year high of 3.1% in November 2017.
The ONS said it was too soon to be able to identify weaker sterling as the main factor behind July's rise in prices. Instead, higher costs for hotel rooms, video games and consoles, as well as less discounting to clothes in summer sales, increased the annual rate of inflation, it said.
The BoE says that underlying inflation pressures mean it is still likely to need to raise interest rates over the medium term, assuming Britain avoids major disruption on Oct. 31 and the global economy recovers.
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