Inflation Drops to 2.6%
The rapid rise in inflation is causing worry among traders The rise in inflation is a direct impact of the the vote to leave the EU.
The uncertainty surrounding Brexit talks has caused the pound to drop to a low of 1.1170 on GBP/EUR of late. The low value of the pound has caused imports to become substantially more expensive. Importers are then forced to put the value of their goods up and these price increases hit the consumer. This is all very well provided consumers are prepared to pay higher prices. If they are not , this is when the economy could suffer and there is the potential for a recession. There is a direct link between inflation and wage growth. If average wage growth is not keeping up with inflation, alarm bells will ring. Average wage growth currently sits at 1.8%.
Consumer Price Index (CPI) data was released yesterday. CPI is a key barometer for inflation. Inflation dropped from 2.9% to 2.6% and Sterling fell against the majority of major currencies. Despite the fall in Sterling, I am of the opinion a drop in inflation is a good news, the closer to average wage growth inflation getsthe better for the economy long term. The reason for the drop in the pound’s value can be attributed to the decreased likelihood of an interest rate hike by the Bank of England (BOE). Further increases in inflation would have meant a rate hike would be more probable. I believe a raise in rates is a solution to the inflation problem.
If Sterling is to strengthen significantly the stance on Brexit negotiations needs to be made clear. We also need a firm government in place without constant threats to the prime minister’s position. I think we are moving closer to a soft Brexit with the freedom of movement of people required in order to have free trade. There will need to be compromise rather than the previous “have your cake and eat it strategy”. Unfortunately if we are moving toward a soft Brexit I think it will not be quick for fear of public uproar following the vote to leave.
If you have a currency transfer to perform in the coming days, weeks or months then I will be happy to speak to you directly as I will be willing to help you both with trying to time a transaction and getting you the best possible rate when you do come to trade. A small improvement in a rate of exchange can make a significant difference so for the sake of taking a few minutes to email me you may find you save yourself hundreds if not thousands of Pounds. You can contact me (Daniel Johnson) on [email protected] and I will endeavor to get back to you as quickly as possible. Thank you for reading.