Pound Up On Inflation News

Pound Up On Inflation News.

The Office for National statistics has today published an unexpected rise in UK inflation to 0.5% for March 2016. This is the highest rate of inflation in the UK for 15 months.

The government and the Bank of England has a target inflation rate of 2.5% per annum for the UK, so our economy is not growing at the pace that is believed to be optimum. However at least it is growing with prices rising and as a result, if the expectation of increased inflation continues, it therefore drives an expectation for increased interest rates in the future to slow the economy down.

By reducing the risk of deflation with increasing inflation, and the prospects of interest rates rising, the pound has risen against most global currencies, albeit marginally.

Comment

We are not out of the woods yet! The UK "Brexit" is a very close call. Opinion polls vary widely and if there is a gradual move towards Britain leaving the European Union, the pound will weaken further and indeed we suggest will fall dramatically if there raise a yes vote to leave the European Union.

Whilst a weak pound is bad for our holiday spend, it is actually exceptionally good for British exports as a weak pound will mean British goods are much cheaper overseas i.e. our exports will increase, our trade deficit will fall. For now, at least prices are rising meaning that the economy is growing marginally.