Excel Currencies Blog

'Disinflation in the UK is stalling and 4% inflation could be realised by summer' say some economists we follow after the UK posted a surprising 3% inflation figure for January. A result of 2.8% was expected, up from 2.5% in December, but the extra spike has caused some jitters in financial markets.

The more important core inflation number (which excludes volatile markets such as energy & food) rose to 3.7% from 3.2%, a major concern for the BoE on what to do with interest rates. This comes after wages grew 6% in December (the fastest since November 2023) in an environment of no economic growth.

With UK businesses expected to pass their tax increases onto consumers in the Spring, there is hardly no doubt at all that inflation will continue to rise in the country. With inflation going higher and growth completely stagnant, stagflation is a very real possibility and that is a horrendous outcome for all.

So what does this mean?

Well in the short term, this is positive news for the Pound. Higher interest rates mean a stronger currency. If inflation moves further away from the 2% target, interest rates will have to stay the same. This is exactly why Sterling has gained in value across the board this week.

For consumers, this is not good news as costs are going up. And in the longer term, this is all GBP negative. A no growth environment or stagflation will be a serious cause of concern amongst investors who will not want to hold or trade in the Pound.

For now, both GBP v EUR & GBP v USD are providing great value for spot trades, hedging and of course Forward Contracts (find out more on each in the below section).