UK Inflation has risen to 11.1%, which is a 41 – year high. The pound is weaker against many currencies on this news, as the damage of rising prices to the economy is considered.
Inflation has been a real problem for not just the UK, but also the global economy as central banks are forced to raise and adjust interest rates to combat the rise in prices of goods and services in the respective economies.
Sterling might typically be stronger on the back of expectations that interest rates might have to rise, and whilst this is likely and possible, the pound is actually weaker as the rise in inflation could lead to greater damage to the UK economy.
The UK is expected to enter recession which the Bank of England has predicted could last into 2024. Recession is defined as two quarters of negative economic growth so this will definitely fit the bill, with some economists forecasting the UK is already in recession now following the 0.2% economic contraction in Q3 of this year.
Sterling is suffering from a lack of positive news to warrant a rise, with many forecasters predicting the pound will be lower over the coming months. On GBPEUR, 76% of the 38 forecasters we surveyed predicted GBPEUR levels below 1.15.
If you have a currency exchange to consider, and wish to better understand the market and future forecasts, we can share with you market insight and knowledge to help provide some guidance as to the best course of action.
Looking to the rest of this week, tomorrow is of course the autumn statement, billed as a key fiscal event. The market will certainly take note and there is definitely some potential for movement as the measures likely to be announced by the Chancellor influence the depth and scale of the recession expected.
Tax hikes and spending cuts seem to be the theme, with ‘austerity 2.0’ unlikely to receive great treatment by the press and possibly the markets. The flipside (and a point Jeremy Hunt is sure to drive home), is that the UK must show responsibility in its financial affairs, and show a credible plan to balance the books. There is potential for some upside should the plans be well received by markets.
If the UK economy was your friend, massively in debt and spending lots more than they earned, you would probably be suggesting they stop spending so much and become more organised in their financial affairs.
Of course, running a country is a lot more complicated than offering financial opinions to a friend. It will be interesting to see what approach the new government will be taking, and just how well or badly it is received.
Thank you for reading and please contact us to discuss further the market and what lies ahead.