By Ashley Finill
Sterling Reacts to Key UK Economic Releases
This week has seen some life in the currency market due to a busy run of UK economic data releases. Earlier in the week the Pound found some support after inflation eased more than expected, following a fall in energy prices. This increased expectations that the Bank of England may continue to hold interest rates at current levels, although concerns surrounding the ongoing conflict in Iran and the impact this could have on gas and oil prices, still remains and will most likely see the Bank of England remain cautious. Confidence in the Pound was later hit following weaker than expected PMI data, which showed signs that parts of the UK economy may be slowing quicker than expected. Unemployment data also added to concerns after the jobless rate edged slightly higher, although wage growth remains fairly strong for now.
Political Uncertainty Continues to Weigh on Sterling
Kier Starmer’s position as Prime Minister seems safe for now, following the disastrous local election results for the Labour Party, which briefly placed the PM under significant pressure. While, for now, it appears he has survived, there is still political uncertainty surrounding his position and markets are likely to remain cautious. Greater Manchester Mayor Andy Burnham has now made moves towards a return to Westminster, through next month’s Makerfield by-election, with growing speculation that he could eventually challenge Starmer for the Labour leadership. This has highlighted divisions within Labour, over who is best placed to lead the country, including most notably Wes Streeting’s resignation from the cabinet last week. Next month’s by-election presents a difficult situation for Starmer. Reform UK continues to gain momentum and could pose a serious threat in the seat, while a Burnham victory would only increase speculation around a future leadership challenge. Political uncertainty remains something for markets to keep a close eye on in the weeks ahead, with Sterling likely to remain sensitive to developments.
Weak Retail Sales This Morning Add Pressure to Sterling
This morning’s retail sales figures added further pressure to Sterling after consumer spending fell much more than expected, highlighting that higher borrowing costs and ongoing cost of living pressures are continuing to impact UK households. Yesterday, Rachel Reeves also announced plans aimed at helping with the cost-of-living crisis through food tariff cuts, free bus travel for under-15s and VAT reductions on summer attractions. Overall, while Sterling has managed to hold relatively steady against the Euro this week, the softer economic data has limited further gains and markets will continue to watch closely for signs of whether the Bank of England may begin shifting its stance on interest rates in the months ahead. As always stay in close contact with you currency consultant for support and friendly guidance.