Brexit vote boosts the Pound
Sterling has strengthened against the Aussie following what Theresa May called a “historic decision to back the will of the British people.”
Parliament passed a vote to accept some European law which is progress in regards to Brexit negotiations. GBP/AUD has now risen to 1.64. Brexit is a key factor in the value of the pound and the current level uncertainty has made investors reluctant to move to the pound. This spike is certainly welcome.
Inflation key to Interest Rate levels in the UK
The question is will this rally continue? We have CPI data this morning which is a measure of inflation based on the price changes of goods and services. This is being very keenly watched by investors and market analysts alike. Inflation has seen a rapid rise in the UK this year at one point hitting 2.9%. There were rumors if it continued to increase the Bank of England could hike rates. The next results showed a fall to 2.6% , and today’s figures are expected to come in at 2.8% which could again put a rate hike on the cards and boost Sterling value.
I am of the opinion a rate hike is not a solution to the problem and that in order to solve the inflation problem we need clarity on Brexit and a stable government. The rapid rise in inflation is a direct result of Brexit and the weak value of the pound, goods are now more expensive to purchase from business and that increase is being passed on to the consumer. If average wage growth does not keep up with inflation the economy could be facing serious problems. average wage growth is currently some way behind inflation at 1.8%. The new figures are released tomorrow. Inflation and average wage data could well influence the interest rate vote by the MPC on Thursday. There is definitely the possibility of volatility.
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