The pound fell sharply yesterday after the UK inflation rate jumped from 7% to 9% – its highest level since 1982.
Comments from UK government cabinet ministers at the start of the week appeared to rule out further restrictions and that the country is on the road ‘from pandemic to endemic’.
Growth data for November released on Friday reinforced optimism in the UK’s recovery as GDP rose above pre-pandemic levels for the first time, with the country’s economy 0.7% larger than in February 2020.
However, some GBP investors remained cautious as November’s figures were before the Omicron variant hit the UK, and many analysts expect growth in December and January to dip again due to declining consumer confidence hitting retail, travel and hospitality industries.
Hopes of a breakthrough in post-Brexit UK-EU talks also supported optimism as UK lead Brexit negotiator Liz Truss and EU counterpart Maroš Šefčovič described talks as ‘cordial’ and that negotiations will ‘intensify’ on the Northern Ireland protocol this week.
Sterling continued to face headwinds through last week as the furore over Downing Street parties fuelled some political uncertainty in the UK government, which will likely continue into this week.
Looking ahead, upbeat UK jobs data released tomorrow may increase pressure on the BoE to raise interest rates again in February as forecasts point to unemployment remaining at 4.2% in the three months to November, while wage growth is expected to slow to 4.2% from 4.9%.
Expectations for the consumer price index to have edged higher in December to 5.2% from 5.1% may provide further evidence that the BoE will raise interest rates in an attempt to bring down inflation.
However, UK retail sales for December may dent the pound at the end of the week as the forecast -0.6% contraction may confirm fears of weaker growth at the end of the year.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)