The Pound has tumbled following this morning’s inflationary data, despite missing market expectations inflationary levels now sit at a 2-year high as the UK prepares itself for an EU-exit. Figures released indicated that inflation grew 1.8% in January, with predictions for 1.9% growth YOY.
Although the figures missed market expectations higher inflation looks set to become the norm in the UK, as a weaker Sterling and higher fuel costs drive levels higher.
The release was taken negatively by the markets amid concerns that out of control inflation will drive higher consumer prices causing the UK economy to slow down. The Bank of England must weigh up their choices with inflation predicted to rise above 3%, the BoE may have consider the potential for higher interest rates.
Lower wage earnings and higher inflation bad news for UK PLC
Higher inflation coupled with lower wage growth will hurt the poorest of families as consumers look to save, the Bank of England may have little choice but to raise interest rates in the months ahead, which could equally spell bad news for consumer spending.
Less money in consumer’s pockets, more expensive goods and higher interest rates on loans and mortgages may only serve to dampen spending, but on the flip side raising interest rates may strengthen the Pound and balance the books on inflation.
Will the Pound continue to build momentum?
As the UK heads towards its March deadline for triggering Article 50 – beginning the process of exiting the EU – the Pound has further opportunities to make gains against both the Euro and US Dollar.
Political concerns around the French and Dutch elections have already rattled Euro exchange rates, whilst over in the US President Trump has markets worried about national security.
I personally see GBP/EUR going as high as 1.20 by the end of February but these rates may not be around for long, as the Pound’s direction will hinge on the then Brexit negotiations.