Inflation for the month of June rose .1%, it may be too early to determine the impact of Brexit at this stage, but it could prevent a rate cut by the Bank of England in August.

Yesterday the UK Inflation figures were released showing that the cost of everyday household goods and services grew 0.5% from the month of May. Furthermore the year on year result showed a 0.1% improvement from June 2015. Considering the disruption caused by the run-up to the referendum it does pose some interesting questions. The reason for the improvements has been put down to the increase in fuel prices and flights, mainly associated with fans travelling to the Euro’s in France.

The data taken for the latest inflation figure was recorded before the Brexit vote so this time next month could indicate a different story. However as fuel prices have continued to rise in the last few weeks despite the cost of a barrel of oil falling, it seems possible that next month’s Consumer Price Index (CPI) figures may not fall. Yesterday’s CPI figures are the last before the Monetary Policy Committee meet again in August and there is only an inflation report next week to be published before that point. In my opinion unless there is a drastic amount of evidence that shows a major slowdown in the next two weeks, then it might be too early to cut interest rates.

Boost Output or Improve Inflation?

The recent weakening of Sterling may help to boost inflation levels and could allow the Bank of England to achieve the targeted 2% inflation for the first time since late 2013. Whilst Sterling’s weakness has increased the cost for the UK population to go abroad, foreign investors have a very attractive opportunity. The post Brexit purchases of Poundland and ARM Technologies could be the start of an international investment frenzy. One very attractive area maybe the housing market which a lot of analysts expect could fall, however with Sterling’s recent weakness foreign investors have made over 10% savings on the cost of property.

The Bank of England may consider Stimulus and purchase bank debt to increase the amount of cash that can be invested. However if the business sentiment reports are accurate and projects are on hold due to Brexit there may not be an appetite for borrowing, which will just increase the amount of debt on the banks books. If the UK is able to escape a rate cut in August I believe there is a good chance that GBP/EUR exchange rates could move back towards the 1.23 level.

For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here.

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