By Grace Smyth
In recent weeks the Pound has made some positive gains, particularly against the Euro, and has provided the best exchange levels seen in around 6 months. A welcome relief for those with sterling and looking to purchase their dream home in the sun. The reason the Pound has been on the up is thanks to higher interest rate levels than those in the Eurozone, making sterling a more attractive pot for investors to place their money.
Now although higher interest rates are seen as a positive for currency, for many at the moment it is causing some trouble. The UK is still facing a cost of living crisis with many struggling to keep up with the high levels of inflation. Bank of England Governor Andrew Bailey addressed members of parliament’s Treasury Select Committee yesterday morning citing inflation has turned a corner and the Monetary Policy Committee will be adjusting the bank rate as necessary to return inflation to target sustainability in the medium term. The comments did little to move pound sterling at the time, however as the trading day progressed we did see rates drop off marginally then pick back up to test recent resistance levels.
Early this morning the UK released its inflation rate which has dropped from 10% to 8.7%. This is the first time the rate has fallen below 10% since August last year. Markets had been expecting a decrease with predictions of 8.2% by economists and 8.4% by the Bank of England so this hadn’t quite hit the mark. The drop in the rate is largely driven by stabilised energy costs in April compared to the dramatic increase recorded at the same time last year. Although we have seen a decrease in this area, food inflation remains close to 20% sitting at 19.1% and core inflation, excluding food, alcohol, tobacco and energy prices, jumped from 6.2% to 6.8% underlining the danger that high inflation remains persistent in the UK.
The currency market’s knee jerk reaction to the news was positive with a nice increase of around 20-30 pips against the Euro and a little less against the US Dollar. Clearly there is still major room for improvement in regards to inflation so the battle continues. The BoE has been consistently raising interest rates in order to do this and economists will be speculating further rises still.
The UK economy is in no way out of the woods just yet, so if you have an upcoming currency requirement and want to take advantage of the current levels then do get in touch with your consultant here at A Place in the Sun Currency or speak to a member of our friendly team to discuss the options we provide to help you best secure your funds to suit you.