We have seen a mixed bag of economic data from the UK this week. GDP saw a 0.1% rise which was a bit of a shock as I thought there could well be a decline, considering the level of inflation and stagnant wage growth. The GDP data caused a considerable rise in Sterling’s value against the majority of major currencies even though it only rose by such a small amount. The spike could have been due to the fact the positive GDP results bring a UK interest rate hike a step closer.

Retail sales data released yesterday however, was shocking. The most significant fall since March 2009. This shows Brexit is now hitting the economy.

UK Interest Rate Decision

Reuters recently stated there is an 83% chance of a rate hike by the Bank of England (BOE) on November 2nd. The justification behind the hike is dubious, I mentioned inflation and average wage growth earlier. Inflation is only positive if wage growth is at a similar pace, which it isn’t. Unemployment is being lauded as the best figures since the 70’s but they have only recently incorporated zero hour contracts which is hardly the most stable form of employment.

Still, the hike looks set to occur. But, be wary if you are expecting a big spike in the Pound’s value if the hike occurs. The market moves on rumour and if there is currently an 83% chance of a hike I would only expect small gains if the hike takes place.
The concern is if the hike does not go ahead or is less than the 0.25% expectation. This could cause Sterling to take a hammering. I would not be waiting for the hike if I was selling Sterling weighing up risk and reward.