Pound Sterling has clawed back from its recent lows following the flash crash in the Asian markets and the strenuous debate amongst MP’s on the recent Referendum result. Whichever way you wish to look at it, Labour and Conservative MP’s are undoubtedly going to disagree over the ratification of any Brexit deal. Stronger than expected inflationary figures last Tuesday provided some short term breathing space for the Pound, but poses further questions as to just how healthy the UK economy is. In any event, the difference on a £200,000 Euro purchase today compared to the lows of the 11th of October are noticeable.
If there was any doubt that a vote to leave the European Union would lead to a drying up of consumer spending, look no further than last Thursday’s retail sales. Filling up a on a tank of petrol this morning cost 1.18 a litre which under normal circumstances, is unusual given that oil prices have remained on the lower end of $50 a barrel in recent weeks.
But the depreciation in Sterling’s value has dented the UK economy, forcing businesses to pass on these extra costs to consumers.
Which is why I believe some Sterling weakness will arise tomorrow. The Governor of the Bank of England Mark Carney will hold a speech to which I expect him to echo these warnings. Equally, the Gfk consumer confidence survey in the latter part of Tuesday evening could show a downturn as a result of a weaker Pound.
Yes, it is true the UK could go through a period of higher inflation which may cushion the economy during these uncertain times, but higher inflation coupled with lower consumer spending could lead to stagflation.
That being said, Thursday’s Consumer price estimates for Q3 could throw up some surprises. Consumer spending heightened following the Brexit vote due in most part to the summer games. Arguably, it may have taken some time for a weaker Pound to tamper with consumer prices, as in most cases businesses buy months in advance. So with this in mind, we could see another spike for Sterling on Thursday giving clients further comfort towards a currency transfer.
Making the most of spikes in the market is important for those currently selling Sterling. With some banks predicting further falls in the Pound’s value, clients should make the most of any opportunities that arise. And as always, for peace of mind our brokers are available until 6pm today to answer any of your questions on 01494 725 353.
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