By Matthew Boyle
Whilst the Pound to Euro rate is sitting around the best it has been in 7 months or so, UK inflation this morning has raised both eyebrows and concerns that the UK could be heading towards an impending economic recession.
Inflation figures from May were expected to drop to 8.4% whilst in fact it held at 8.7%. As a result, there is a renewed expectation that to combat this the Bank of England will continue to raise interest rates – many suggest now as high as 6%. When the BoE meet tomorrow it is almost certain we will see another hike in rates, with the next expected to be in August.
Undoubtedly inflation is a real problem for the UK at present, and indeed the Bank of England who appear are struggling to contain it, let alone push it down.
And indeed, it is a very complicated issue when it comes to its effect on exchange rates too.
On one hand the resulting hike in interest rates provides the Pound with increased strength, particularly foreign investment as buyers become attracted to higher returns. On the other the impact of rising rates looks set to be a critical problem quickly, if not already, as borrowers see the cost of repayments increase and with pressure mounting quickly on UK housing market and mortgage holders.
Whilst Jeremy Hunt might head the increasing cries for help and lean on the Bank of England to provide support for UK borrowers, the money to do this will have to come from somewhere. A BoE relief package now would only kick the problem down the road and only lengthen the expected recession when it hits.
And with inflation looking currently untameable, printing more Pound notes will only add fuel to the fire.
With GBP>EUR rates sat close to the best they have been in 7 months those with an upcoming requirement may want to consider taking advantage. The alternative seeming like it could be trying to gain an inch whilst risking losing a mile. With sterling positioned where it is at and rising interest rates piling pressure on quickly, cracks in the UK economy are showing fast – and with them a downside risk to GBP rates.
This afternoon we have US Fed Chair Powell speaking – the only remaining release today likely to be of any note. However, all eyes will be set firmly on the Bank of England meeting and interest rate decision due tomorrow at midday.
If you have an upcoming requirement speak to your A Place in the Sun Currency consultant to discuss the ways in which we can help you remove risk and potential increasing cost for your upcoming transfer.