UK Inflation and Sterling Exchange Rates

Consumer Price Index (CPI) figures came in as expected at 1.3% which was a slight improvement on last month’s number which is a small relief for Sterling exchange rates. Having been close to the target level of 2% for a while, inflation has fallen steadily in recent months which has reduced the chances of an interest rate hike and therefore has resulted in the Pound falling in value against most the major currencies. Theoretically high inflation is controlled by raising interest rates as it should lead to people saving rather than spending which means prices should fall while the opposite is also true. So, the fact inflation is low has put back the chances of an interest rate hike in the UK which, earlier in the year,┬áhad been rumoured to be at some point this year but today’s improvement is a little movement in the right direction although not enough to prompt discussions of a rate hike as it will still need to rise further, closer to the 2% target before the Bank of England (BoE) can increase interest rates. As the new year approaches I think the general election and the question as to when the BoE will increase interest rates will be two of the main drivers of Sterling exchange rates into and through 2015 so for those clients with an upcoming currency requirement it will be important to follow the inflation figures. In the meantime keep in contact with one of our experienced currency brokers here at Foreign Currency Direct plc so we can keep you informed of all the latest currency news and the options available to you. You can call straight through to our trading floor for free on 0800 328 5884 or if calling from abroad call us on 0044 1494 725353.