UK Inflation figures make for grim reading

By Matthew Vassallo

The Pound received a timely boost following the release of last week’s UK Gross Domestic Product (GDP) figures. The official reading showed the UK economy had grown by 0.3% in December, which was higher than the predicted result of 0.2%. Perhaps more importantly, the figures released confirmed the UK economy had once again managed to avoid falling into a recession. This result sparked a flurry of support for GBP, with the Pound immediately moving away from the near 6-month and 3-month lows it was trading at against the USD & EUR respectively back in December.

Whilst both GBP/EUR & GBP/USD rates have remained fairly docile and locked within a tight trading range so far this week, Sterling’s overall position has weakened slightly in line with growing tensions in the Middle East and on the Red Sea. Whilst the rhetoric from both sides continues to become more antagonistic, the reaction from investors is likely to become far more cautionary in terms of their risk appetite for Sterling, which has become a far riskier asset than it once was. With the global markets once again slowing and on high alert, any further escalations are likely to be of detriment to the Pound, as investors shy away and return to the safer haven USD.

Breaking Inflation News

The UK economy is once fighting rising inflation, with this morning’s official reading showing an unexpected increase back up to 4%. This will likely scupper any plans the Bank of England (BoE) may have had to start cutting the UK’s base interest rate and will likely call into question the central bank’s strategy of, up until only recently, consistently raising rates to try and counter the unprecedented high levels of inflation. This morning’s figure will also make for grim reading amongst UK households, who were hoping that the current high cost of living crisis was starting to soften and would continue to do so through Q1 of 2024.

Looking at the US and the early Republican nominee primaries have confirmed what many already knew, which is that Donald Trump is all but a shoe-in to be the Republican nominee ahead of this year’s Presidential elections in November. Whilst US inflation numbers are starting to decrease in line with the Fed’s own interest rate hike strategy, the ongoing global conflicts and a significant drop in US New Home Sales, means that President Biden is likely to come under attack from Trump and his allies over the coming months.

Surely the man who’s been indicted more times than Al Capone can’t once again hold the highest position of office in the land…..can he?