Is their an interest rate hike on the cards?
Today we saw the UK interest rate decision, rates were kept on hold, but it was a shock to the markets that three members of the Monetary Policy Committee (MPC) voted in favor of a rate hike. The MPC meet once a month in order to vote on whether to make any changes to the interest rate. If the vote comes in away from expectations it can cause volatility on the exchange as witnessed today. There are currently eight members of the MPC and a majority vote in needed for there to be a change in rates.
Today the vote came in at 5-3 in favor of keeping rates on hold, the expectation was for 1 vote in favor of a hike. Inflation is now at 2.9% and we have seen a rapid rise which is a direct result of the vote to leave the EU. Some may deem inflation to be a positive, but this surge is not necessarily welcome. The weak value of the pound is causing exports to become far more expensive. Retailers then push the price increase on to the consumer, this is fine provided the general public continue to purchase goods, however if the average wage does not grow at the same rate as inflation and people stop spending there could be a recession on the cards.
Political Uncertainty still weighing down the Pound
Political uncertainty historically weakens the currency in question and this is definitely the case in the UK at present. Until a coalition is finalised there is little chance of any significant sterling strength. The Queens speech has been delayed until 21st June due to the Grenfell Tower tragedy. This is when she will officially announce we have a government in place. I would expect news of the finalised coalition to surface in the press before hand however and we can expect a spike in sterling value.
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