Inflation Down in the UK

By Ashley Finill

This morning the first of two important data releases of the week in UK has been released as the UK inflation figure was announced. The figure recorded for August posted at 6.7%, just 0.1% lower than last month’s figure although economists, along with the Bank of England, had predicted that inflation would come in at around 7.1%.  With the cost-of-living crisis continuing to grip the UK, in recent weeks we have started to see petrol prices increase and food prices and other commodities remaining at very high prices. With that being the case inflation is running currently running at its weakest pace since February 2022. Although a drop from 6.8% to 6.7% is only marginal this will please the government as Rishi Sunak and Jeremy Hunt have both pledged to half the inflation rate to around 5% by the end of the year. In reaction to this key data release this morning we have seen as hard half a cent drop for Sterling on both the majors. Sterling has now lost just over 2 cents on both the Euro and US Dollar. For the GBP/EUR, this is still within the 2-cent trading range we have seen over the last 12 months but with the Bank of England holding tomorrow’s interest rate decision at 12.00pm we could see the Pound drop into a new range depending on the decision the BoE.

All Eyes On the Bank of England

As mentioned, tomorrow afternoon The Bank of England will announce their interest rate decision based on the back of today inflation figure. It had been expected that the BoE were going to raise the interest rate for the 15th consecutive time, however, will today’s marginal drop change the minds of some members of the monetary policy committee and pause on further rate hikes for now. The BoE have stepped in over the past 20 months to help curb inflation in the UK by raising interest rates for people to save more and spend less but with this came soaring mortgage rates, the highest since the banking crash of 2008 which hurt the pockets of millions in the UK with repayments on mortgages as well as crippling costs for food, energy, and other commodities. With the expectation of August’s inflation figure to increase, you could pretty much put money on the BoE raising the interest rate again, however tomorrow release will be even more interesting and key for Sterling going forward. Historically, interest rate rises from the BoE have come to the aid of Sterling in the currency market, but should we see a pause on any further hikes, we may see Sterling drop further throughout this weeks trading. Should you have an imminent currency requirement it may be prudent to contact your currency consultant to discuss your options. We have a selection of currency contracts that may benefit you so that you are not caught from the unpredictable data releases and movements in the currency market.

Remaining data this week

There are still several key data releases for today, Thursday and Friday which will certainly cause volatility in the currency markets. This after the US will announce their interest rate decision which is expected to remain at 5.5%. Should the FED choose to opt for a hike then we will almost certainly see movements for USD. Following their decision on interest rates there will be an FOMC press conference to give analysis on their decision and future plans for interest rates going forward. Overnight into Thursday morning GDP will be posted in New Zealand which is expected to be an improved figure to 0.5% from last months -0.1%. On Thursday another busy day on the data front, in the morning the Swiss national bank will announce their interest rate decision, they are excepted to raise their interest rate by 0.25% to 2%. At 12pm the BoE will announce the interest rate in the UK. Over to the US at 12.30pm a initial jobless claims are posted. On Friday, the UK release retail sales which is expected to come in better than last month’s reading of -1.2% to 0.5%. As always stay in close contact with your currency consultant for friendly and expert guidance.