LONDON (Dow Jones)--Sterling has nudged lower yet again Tuesday after U.K. annual consumer price inflation slumped to its weakest rate in seven years.
The U.K. currency hit a fresh six-month low against the euro and a fresh four-month low against the dollar after September consumer price inflation came in at 1.1% on the year, against economists' expectations for a reading of 1.3%.
That shoved the euro 0.2% higher to over GBP0.94 for the first time since March, while the pound sank by a similar degree against the dollar to trade at a low of $1.5718.
The pound had already seen a shaky start to European trading, falling despite above-consensus readings in retail sales and housing market data.
Total retail sales rose 4.9% on the year to September, albeit after a weak period a year earlier. The figure followed a 2.2% gain a month earlier, and was significantly higher than the 3% level expected by economists.
Weak housing supply also boosted the widely watched RICS house-market index, which climbed to its highest level in more than two years.
Some economists said September's inflation reading will probably be the lowest point in the data for now. Still, the data cast doubt on the success of the Bank of England's asset purchase scheme to date and suggest the Bank may expand the program further.
"The current environment is the best of bad circumstances for the Bank of England," said Simon Derrick, a senior currencies analyst at The Bank of New York Mellon in London.
"There are no signs of rising inflation. Sterling is falling, but not collapsing. Therefore the Bank of England can use all the tools it has to keep things as accommodative as possible for as long as possible," he said.
However, the risk that inflation could ramp up quickly from here could "make it harder to build the case for further monetary stimulus," said Lena Komileva, a director and head of Group of Seven leading industrial nations market economics at brokerage Tullet Prebon.
"We expect more volatility in sterling markets," she added.
At 1015 GMT, the euro was trading at GBP0.9390, while sterling was at $1.5784.
Source: Wall Street Journal