Pound Sterling (GBP) Exchange Rate Outlook Sours on Weak UK Inflation Data

Published: Tuesday, 13 September 2016 11:00 BST - Written by John Cameron

STORY LINK Pound Sterling (GBP) Exchange Rate Outlook Sours on Weak UK Inflation Data

Pound Sterling (GBP) Exchange Rate Pressured by Post Brexit Inflation News

This morning’s UK Consumer Price Index (CPI) inflation figures piled the pressure on Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates ahead of Thursday’s Bank of England monetary policy announcement.

July’s year-on-year inflation figure printed at 0.6% and the consensus opinion amongst analysts was that the counterpart August data, published this morning, would reveal a slight increase driven by the broad Sterling weakness which followed June’s UK referendum result. The Office of National Statistics (ONS), which publishes the data, put it in simple terms, explaining that,

‘The CPI 12-month rate (the amount prices change over a year) between August 2015 and August 2016 stood at 0.6%. This means that a basket of goods and services that cost £100.00 in August 2015 would have cost £100.60 in August 2016.’

GBP to EUR, USD, AUD Exchange Rates Trending Lower Today

The data left Pound Sterling (GBP) exchange rates struggling and the GBP/EUR, GBP/USD, GBP/AUD and GBP/NZD currency pairs all registered losses.

Drilling down into the figures, the ONS explained the sector by sector breakdown which provided evidence that an increase in the prices charged to foreign tourists since the Brexit vote is helping to increase the pace of domestic price rises. The ONS noted that,

‘The rate is unchanged from July and slightly above the figures experienced in the first half of 2016. The rates for 2016 to date are still relatively low overall but are generally above those experienced in 2015, which was a year of historically low inflation, with the rate being at or around zero for much of the year. The largest downward pull on inflation in August 2016 and for 2016 to date comes from prices for food and non-alcoholic beverages. Upward pressures come from a variety of categories, most notably restaurant and hotel bills. Transport prices provided a downward pressure during 2015 and early 2016 but this has eased during 2016 and they now have an upward effect.’

Pound Sterling Exchange Rate Forecast: BoE Decision Expected to Impact GBP Currency Trading

Looking ahead, the next risk event of note for Pound Sterling (GBP) exchange rate watchers comes on Thursday in the form of the latest Bank of England (BoE) monetary policy announcement. No policy change is expected from the Bank of England but it would be a surprise if the tone of the Bank’s accompanying minutes is not Sterling-negative.

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