The UK and the pound suffered yet another blow yesterday morning following the latest release of UK Inflation data which fell to a two year low in January, below the Bank of England’s target rate of 2%. Consumer Price Index was released at 1.8%, far below the 2.1% recorded in December, and can be attributed to falling energy bills and the cost of fuel including petrol and crude oil, but was slightly offset by higher travel fares including air and ferry fares.
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Looking forward, an energy price cap which was introduced by Ofgem in January 2019 is now being raised in April, which will more than likely filter through into future Inflation readings and will be keenly monitored for signs of an improving economy. Many economists aren’t expecting inflation to fall any further than this point given the current climate, although this is entirely dependent on the UK achieving a Brexit deal. However, if a deal isn’t reached, predictions are circulating that economic activity would take an enormous hit, forcing the Bank of England to cut interest rates for the first time since 2016, and could have dire repercussions for the value of the pound.
However, the pound received another welcome boost, helping it back into the 1.14’s once again after UK Prime Minister Theresa May quashed reports that she would force MPs to decide between backing her Brexit deal and accepting an extension for leaving the European Union.
It was reported yesterday that Olly Robbins, Chief UK negotiator, was overheard saying that the EU was expected to allow a delay to the UK’s withdrawal from the EU, whilst in a bar in Brussels.
However, May confirmed that the Government’s position remains the same, that the triggering of Article 50 had a two year time limit which will end on 29th March, and that the Government continue to work towards leaving with a deal.
Mrs May is currently discussing the possibility of securing legally binding changes to the Irish backstop, which has been one of the main points of contention between the UK and EU in negotiations. A few of these options include putting a time limit on how long the backstop would stay in place, replacing it with an alternative arrangement, or creating an alternative exit clause which would allow the UK to leave at a time of its choosing. MP’s are expected to vote once again on amendments to the Brexit process at around 17:00 today, so clients with exposure to sterling exchange rate volatility could be sensible to get in touch with us today to plan around this evening’s votes.
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