By Ashley Finill
This morning the inflation figure for the UK has been released and has seen a reduction by almost 2%, dropping to 4.8% from last month’s figure of 6.7%. The ONS said that the lower reading is due in part to the lower energy price cap in UK households from the start of October. The Bank of England has over the past 2 years been increasing interest rates to help curb inflation to encourage the public to save more and stop spending, so that demand for goods lowered and in turn brought down the high rate of inflation, rates that had not been seen for over 30 years. However, the hike in rates increased the cost of borrowing with mortgage rates soaring. This morning’s figure will please BoE Governor Andrew Bailey as his plan to lower inflation using high interest rates is starting to pay off. With the government’s target rate of inflation of 2% by the end of the year only 2.6% away, the BoE are highly unlikely to hike interest rates at their next meeting in December. As we have seen over the past 2 years, Sterling has been the beneficiary to the increased interest rates, holding ground and gaining on both the Euro and US dollar. However, since the BoE first decided to pause on any further hikes in September, Sterling has seen itself on a rocky road. With the level of support from the hikes removed, the pound began to tumble. The pound has fallen around 3 cents against the euro since the start of September. Since the inflation figure was announced this morning, although positive, sterling has dropped off from the Euro by around 0.3%. This could be that today’s positive data for Sterling had already been priced in with Yesterday’s rally on the euro somewhat short lived with some of those gains returned already early in today’s trading.
On Monday UK Prime minister Rishi Sunak shook things up within his cabinet following the sacking of Suella Braverman as the home secretary. Braverman made comments ahead of planned marches through London on armistice day last weekend which could have provoked the far right into clashing with other groups in the Capital. Her outspoken comments were a step too far this time as Mr Sunak decided to show her the door. Enter David Cameron. A shock move to appoint the former EU referendum-appeasing PM as foreign secretary. With a shake up in cabinet, Sunak is trying to put his best team forward ahead of next year’s election and with Labour taking strongly held Tory seats in recent by-elections the Conservative party have a lot of work to do in getting back some of their voters’ trust and faith in the party. In what has been a turbulent week for Mr Sunak today’s inflation figure will be music to his ears, as getting inflation down is one of his 5 key pledges.
Sterling rallies on USD
For those of you with a USD requirement it may be worth looking at your options as Sterling has gained over 3 cents on the US dollar over the past week. This is down to unexpected and fairly disappointing US economic data releases over the past couple of days. The US inflation rate slowed down to more than what had been expected and US CPI data was unchanged from September to October. Later today, US retail sales are to be released at 1.30pm with a contraction from last months figure of 0.7% to -0.3%. Should you have a requirement it may be worth getting in contact with us at A Place in the Sun Currency ahead of this data release as if the figure is more positive than expect then recent gains for the pound could be pulled back.