Currency watch: Concerns temper rate relief

With it being plastered all over the news this week I doubt any of you would have been able to miss the story about UK inflation.

For those who hate the news, it was released lower than expected at 4% vs 4.4%, which will have been a cause for mild relief in the coalition ranks. However, these numbers are hardly a reason to break out the bubbly, and there are underlying causes for concern.

While this will come as a welcome relief for homeowners and businesses worried about the cost of funding increasing too soon, it shows that the UK consumer is tightening its purse strings in the face of these price increases.

This trend was backed up by the horrific British Retail Consortium numbers we received on Tuesday night that showed sales down by 3.5%. We could now be looking at a second consumer slowdown as austerity measures bite. This also leaves us under no illusion that interest rates will not increase until August.

This will, however, come as a nice surprise to exporters as it has kept sterling weak and may do so for a little while yet. This could be the perfect time for those of you to hedge away upcoming currency risk as we think that GBP/EUR has reached a near term low and is likely to bounce back in the coming weeks.

You can speak to one of our people on +44 (0)20 7801 9050.
 
Jeremy Cook, chief economist at World First foreign exchange, 15.04.2011