The Bank of England yesterday confirmed they would be keeping interest rates on hold at 0.25%. However Kristin Forbes (one of the nine voting members) surprised the currency market voting in favour of an interest rate hike and GBP/EUR and GBP/USD both spiked over a cent off the back of the news. This doesn’t seem much however on a €200,000 and $200,000 property purchase you could have saved £1,520 and £1,322.
A hawkish tone throughout the Bank of England’s minutes could also be a factor to why the Pound spiked in value yesterday, as the minutes hinted other voting members were also close to voting in favour of an interest rate hike. For clients panicking that their mortgages could become more expensive in the upcoming months, I personally believe a rate hike is very unlikely in the next 12 months.
Within my previous report last month click here to read more, I suggested the Bank of England could have a headache on their hands, as wage growth has dwindled this year. Therefore if wage growth is falling and inflation is rising which means people have less money, raising interest rates would make the situation worse and that’s why I don’t believe the Bank of England will raise rates until wage growth picks up.
Another reason why the Pound rallied against all of the major currencies yesterday is because UK Prime Minster told SNP Leader Nicola Sturgean that Scotland will not be having a 2nd referendum. The PM exclaimed ‘it’s not the time’ and ‘we should be working together not pulling apart’. If we rewind the clock back to when Scotland had their referendum in 2014, the Pound plummeted in value, therefore if the PM will not allow a 2nd referendum you can see why investor confidence has risen within the UK. More to come on this story as reports are suggesting that the SNP will appeal the decision.
It was only a matter of time until the Queen gave Royal assent and therefore Theresa May the power to invoke Article 50 as both houses within Parliament (Commons and Lords) had come to an agreement earlier last week in regards to the Governments Brexit Bill. It has been reported that the Prime Minister will notify Brussels next week and therefore the UK will start negotiations.
Economists are split to whether the triggering will bring certainty to the Pound and therefore an improvement in value, or if the triggering means there is no going back which could lead to further falls for the Pound. It’s key to note since the start of the month and in the run up to triggering GBP/EUR has dropped 3 cents therefore I personally believe the latter is more likely which will mean further falls for Sterling.
Clients purchasing a foreign currency short term should outline their requirements to their account manager on 01494 725 353, so a plan of action can be formulated. Alternatively you can email me here.
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