By Ashley Finill
It’s been a busy couple of days on the currency market and especially for sterling, as we have seen key data releases from the UK which has started to show the frailties of the pound. We have seen a halt to the 3-month rally on the Euro, throwing sterling into reverse and losing around a cent on the single currency. Starting on Wednesday the inflation figure in the UK was announced and came in at 8.7%, the same reading as the previous month showing that Rishi Sunak’s plan of bringing down the levels of inflation in the UK to around 4% by October is quite some way off track. The cost-of-living crisis in the UK continues to grip the nation and although energy prices are set to decrease next month and petrol prices are also falling, it’s the cost of food prices that are inflated at around a 20% increase which is being felt by consumers in the supermarkets. Inflation had been on steady decline through 2023 since the 40 year high seen late last year and inflation was expected to drop to below 8.4% this week, but with the recent reading, drastic measures were on the horizon to help the UK get back on track with the inflation targets – enter the Bank of England.
Bank of England Increase to a surprise 5%
Yesterday afternoon the bank of England as expected raised the interest rate once again in the UK. The monetary policy committee voted in favour of the hike 7-2, but it was the jump of 50 basis points from 4.5 to 5% that was a bit of a shock as only a 0.25% rise had been expected. The last time the base rate was 5% or higher was in 2008 around the financial banking crash. This now the thirteenth time the central bank has raised rates in the past 18 months and in doing so has increased the costs of those with mortgages continuing to grip the pockets of many in the UK. Rishi Sunak spoke yesterday at a conference and questions were put to him regarding the inflation levels level drop not going to plan with the government’s target now to have inflation down to 5% by the end of the year. Rishi Sunak said “I always said this would be hard and clearly it’s got harder over the past few months” But he added “I am totally, 100%, on it, and it’s going to be OK” – something we have heard before. Should inflation continue to stagnate and not fall to the levels expected then Sunak could come under increasing pressure, which will not be welcomed for the Conservative party as elections are set to be held next year. With the economy being at the forefront for the government, the Prime Minister will be looking to do everything he can to reverse the recent setback for the economy without the Bank of England having to step in and take drastic action.
Remaining data today
A busy start to this morning’s trading as we have already had a key data release from the UK and the EU which has woken up the currency market. Retail sales figures have been posted and it is not all doom and gloom for the pound as a positive reading of 0.3% has been recorded. In the EU PMI data has been posted which has shown a contraction from last month. This has given Sterling a slight boost in early Friday morning trading as the pound has gained around half a cent on the Euro which is good news for those of you looking to buy Euros. These gains for sterling may however be short lived as PMI for the UK is expected at 9.30am and is expected to show a slight contraction on last months reading. Finishing of the week on the data front, the US also release PMI figures, this is expected to come in marginally better than last months posting.