Sterling Boost After UK Inflation Release

By Ashley Finill

It’s been a good week for Sterling as inflation data from the UK on Wednesday gave the Pound a big boost on both the majors, bringing back levels not seen since early March on the Euro and mid March on the US Dollar. On Wednesday morning the ONS reported that UK inflation had dropped to 2.3%, just short of the expected figure of 2.1%, with expectation that the Bank of England are now unlikely to cut interest rates at their next meeting in June and pricing into that effect has seemingly already started, with Sterling being the beneficiary of said prediction from the BoE meeting early next month. At the last meeting, the Bank of England Governor Andrew Bailey had pretty much spelled out that a cut was imminent as inflation was expected to drop closer to the 2% mark but as inflation fell short his target, his and the monetary policy committee plans are likely to hold off on a cut until at least August. This is good news for Sterling as rates hikes in the country over the past 2 years have given the Pound stability, however this decision is not set in stone so should the BoE decide to cut rates in their next meeting we could see Sterling gains reversed. The BoE were not the only ones with the 2% inflation target in mind as this was also the prime minister Rishi Sunak’s main goal, cue Wednesday afternoon..

Rishi Calls General Election

After weeks of speculation, on Wednesday afternoon at 5pm the Prime Minister Rishi Sunak called for a general election in the UK setting the date for Thursday the 4th of July. This came after the inflation figure dropped in the UK from 3.2% to 2.3% getting close to Sunak’s primary goal of getting inflation down in the country to 2%. Campaigning and TV debates will start to take place across over the coming weeks along with poll releases giving an insight to the feeling of which party is ahead and heading to No 10. With what has been something of a catastrophic past few years for the Conservatives, with Prime Ministers coming and going, scandals, their own MPs defecting the handling of Covid and historic losses in recent by-elections it is not surprising that it’s being reported that Labour already have a 25 point lead over the Tories. When it comes to political events such as a general election, we can start to see frailties in Sterling as uncertainty doesn’t bode well with the currency. As we have seen historically, when polls are released around a general election and give mixed signals this can breed uncertainty which as we have seen in the past can send the Pound spiralling. As mentioned above, this week we have seen big improvements for Sterling which presents Euro and Dollar buyers with a great opportunity. If you have a property completion within the next few weeks it may be prudent to get in contact with your currency consultant to discuss your options. Buying a €150k property compared to 2 weeks ago is roughly £1500 cheaper now, and with also the prospect of fluctuations over the next 6 weeks, then a forward contract could be a great option to take away the risk from any surprise drop in the rate and take advantage of the highs this week resulting in a cheaper property.

Data Remaining this week

To finish off the week data wise we have already had some releases this morning to take note of. Starting in the UK, this morning the new energy price cap has been announced which means the average bill will fall by more than £100 across then year with a 7% decrease, the cap moves from £1,690 to £1,568 from July.  The UK also posted retail sales which came in much lower from the expected -0.2% to -2.3%, Sterling initially dipped against both the majors after this release but has since clawed back the minor losses. To finish off the week, Canada also post retail figures at 12.30pm and lastly the US post Durable goods order at the same time.