Excel Currencies Blog

The Bank of England finally turn aggressive with handling the out of control inflation scene..

Interest rates in the UK have risen for the 13th consecutive time (a new record) and is now at the highest point since 1997 (5%). A jump of 50bp was the majority call by 7 members with 2 voting to bizarrely keep the policy rate on hold. Consensus was for a 25bp hike (which no-one voted for), but it was obvious to us 50bp would be the result after the latest round of inflation data confirmed things are not under control (40-year high).

The double-edged sword decision was a forced one and it means 6% could realistically be the number we end up with by summer-end. The Pound has been weaker since the latest inflation number yesterday, but it did manage to gain in value across the board once the release came out higher than forecast.

However, GBP was later dumped against most currencies due to the significance of the jump and what it will now mean for the UK economy. With mortgages and borrowing far outweighing those capitalizing with savings in high rate accounts, our services nation will suffer and the recession we have been steering clear of thus far, will now likely arrive. 

This is precisely the reason why GBP has lost ground so far this week, even though higher interest rates mean a stronger currency usually. For now, all bets are off in what happens next for the Pound..