The UK’s Consumer Price Index for July came in 0.1% above the expectation providing Sterling with a platform to springboard back into the 1.15’s. Having been the victim of bad news of late, some good news has not gone a miss.
The increase in fuel and a weak currency adding to the cost of imports have forced inflation in a northerly direction. Due to the major movements with the currency it seems plausible that inflation will continue to rise. Whilst this will increase the cost of goods and some will claim its negative, the Bank of England is mandated to keep inflation above 2%. The recent Sterling weakness could mean that is achieved for the first time in a long period.
Article 50 Delay
The process of Britain negotiating its way out of the EU will be done through Article 50. This provides a 2 year window of opportunity for the UK to leave and negotiate a deal. There was never a date set for the process to start, but it can only be triggered by the UK Prime Minister. Theresa May has made it clear that she was not willing to start things moving in 2016 with a previous expectation for the start of 2017. However when the government was recently questioned they didn’t confirm or deny it would be 2017. The importance of Article 50 is that it will allocate an exact date for the UK to Leave; this would offer the markets more certainty.
Further Interest rate Cut
In more doom for Sterling there could be a further cut coming in the not too distant future. The Bank of England have Monetary Policy Committee meetings in September and November which could present windows for further cuts. Looking forwards if you need to buy Sterling I think there is more to be lost in rate drops that gains, I don’t think it could increase as far as it may drop.