A Boost for the Pound

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Pound Sterling trades higher thanks to signs of growing inflationary data but the outlook will ultimately be settled by actions at the Bank of England and by those politicians negotiating our future relationship with Europe.

The British Pound is back above the recent lows recorded against both the Dollar and Euro in mid-week trade.

One of the triggers to the recovery has been the news that UK inflation is ticking up at a faster-than-anticipated rate.

Headline CPI (Annual) rose to 0.6% in July, ahead of the 0.5% forecast.

This suggests that inflation could be rising at a faster rate than those at the Bank of England would be comfortable with; this in turn suggests the Bank will have to think twice about implementing further GBP-negative policies in the future.

bank of england

The Office for National Statistics data  showed that there has been a jump in costs for producers. This is expected to fuel higher consumer prices in the near future.

The main focus was on the impact from Sterling’s 15% decline against the Dollar and 12% decline against the Euro since the Brexit vote. This has created a 3.3% monthly jump in the price that businesses are paying for imported goods, pushing producer prices up by 0.3% compared with June.

These numbers are unlikely to change the Bank of England’s plans in regard to monetary policy.

In forecasts released alongside the recent decision to cut rates and resume quantitative easing, they noted that inflation was likely to overshoot their target in the next two years, largely due to the fall in Sterling.

euro pound notes

There are likely to be a number of fluctuations, both up and down, along the way as the UK negotiates its way through Brexit.

We are only at the beginning of a long journey, with suggestions that the UK might not formally leave the EU until late 2019.

But whatever happens next, HiFX will be here to help you make the most of your money.

 

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