Inflation Up Pound Slides

Inflation Up Pound Slides.

The Office for National Statistics (ONS) has today released figures showing that inflation has hit its highest point in just under three years.

Consumer Prices Inflation (CPI) hit 1.8%pa in January, a 0.2% rise since December.

The rise has been caused mainly by increases in oil prices with a combination of food prices increases.

This is not unexpected and is the fourth monthly rise.

Pressure has been mounting on the Bank of England to increase interest rates and the Bank is yet to react.  On the back of the latest inflation increase, sterling feel yet again driving FTSE 100 shares up i.e. those global companies that earn much of their profit overseas and then convert those profits back into greater amounts of sterling given the weak exchange rate.

Comment

We believe that Bank of England are reluctant to increase interest rates and we will see a prolonged period of low interest rates, keeping the pound low meaning that British exports remain cheaper overseas and large, ‘blue chip’ companies (FTSE 100) still maintaining healthy profits.

When rates increase the pound will strengthen and markets will fall.