Inflation dip drowns out SABMiller boost for sterling

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By Patrick Graham

LONDON, Oct (HKSE: 3366-OL.HK - news) 13 (Reuters) - A surprise fall in British consumer prices in September drove sterling to its weakest against the euro since May on Tuesday, overturning any positive fallout for the pound from the confirmation of a major merger.

The pound had touched a three-week high against the dollar in early trade in Europe on the back of SABMiller (Xetra: BRW1.DE - news) 's acceptance of a cash and share offer from Anheuser-Busch InBev, the world's largest brewer, worth 69 billion pounds ($106 billion).

But that all turned around in the run-up to the publication of the inflation numbers, which showed the consumer price index fell 0.1 percent last month, in contrast to forecasts for a minimal rise.

The pound sank around half a percent against both the euro and dollar before the inflation numbers came out and continued to fall afterwards. The first parliamentary appearance by new Bank of England policymaker Gertjan Vlieghe also weighed on sterling.

"For whatever reason there was a real attack on the pound ahead of the data and that has taken the shine off it," said a dealer with an international bank in London. "Vlieghe's comments just now have probably not helped either."

By 0839 GMT sterling traded 0.8 percent lower on the day at $1.5236 and 74.64 pence per euro respectively.

Gilt futures also jumped about 10 ticks to a high for the day of 118.90 after the data.

Vlieghe said the next move in interest rates would likely be a rise, but underlined it would probably be tentative while pointing to a number of headwinds for growth both globally and domestically.

A number of other players in the market, however, emphasised the likely positive impact of the SABMiller deal. Citi strategist Josh O'Byrne said he remained positive on the pound.

"Generally on sterling we're still quite optimistic," he said. "Clearly there's been some softening in demand. But the BoE (Shenzhen: 200725.SZ - news) continues to make the right sounds, that there is still tightening in prospect so that bodes well." (Additional reporting by Jemima Kelly and Ana Nicolaci da Costa; Editing by Raissa Kasolowsky)