By Tom Arnold
The week started with the Pound higher than we have experienced recently, following last week’s better than anticipated UK growth (GDP) figure. Rates not seen for six weeks against the Euro, meant a buyer of a €200,000 property in Spain was saving around £3000 over just a week or two beforehand.
Markets have been carefully watching the evolving situation with President Trump’s efforts to broker a peace deal in the conflict between Russia and Ukraine, but otherwise rates have been fairly flat so far this week. This morning however has brought something of a surprise, with UK CPI Inflation coming out a little higher than expected – markets had been anticipating a figure of 3.7%, but instead the reading came out at 3.8%, with air fares cited as being one of the main contributing factors.
The Bank of England has a 2% target for inflation and so this is obviously far in excess of that, and the Bank’s recent decision to cut interest rates will undoubtedly come under significant scrutiny. Typically raising interest rates is used to combat higher inflation, as we have seen over the past few years, following Brexit/Covid impacts on UK prices. With lowering of interest rates only really on the cards if inflation is under control. Could the Bank have mistepped? It’s hard to tell, with so many factors in play, and who would want to second guess the UK’s chief economists? But one thing is clear, any further interest rate cuts look unlikely until we see inflation heading back downwards.
For the Pound though this is on balance probably good news. Economically higher inflation is undoubtedly bad for the UK economy and particularly for its consumers, but if interest rate cuts are off the agenda and possible rises maybe even back on the agenda, then the Pound will receive the benefit of yield-seeking investors coming into the UK’s currency. We have already seen an almost half cent jump in rates this morning against both the Euro and the Dollar – likely a potentially good buying opportunity for anyone with Sterling in hand and an upcoming requirement.
On the other side of the coin if you are selling currency to buy Sterling this could likewise be a sign to look to secure your currency – without UK interest rate cuts the chances of rates pushing significantly lower seem to be much less likely.
Whichever way you are looking to exchange it is critical in an uncertain market to be in close contact with your personal account manager to be kept informed of the events as they unfold, the impacts that has on your situation and the options available to you to mitigate the risk of a potentially volatile market.