January 4, 2023 - Written by John Cameron
STORY LINK Pound Canadian Dollar Exchange Rate News: GBP/CAD Soured as UK Food Inflation Hits Record Highs
Pound (GBP) Pressured by Living Cost Squeeze Intensifies
The Pound (GBP) languished on Wednesday as food inflation hits a fresh record high and consumer borrowing increased.
The British Retail Consortium (BRC) reported food inflation soaring to a new record level of 13.3% in December. Following on from a 12.4% increase in November, soaring energy prices saw another dramatic increase in food prices. The fallout from the protracted conflict in Ukraine has seen energy prices skyrocket, impacting food prices, and is expected to continue throughout 2023.
The BRC reported that the increase in prices was the highest since records began in 2005. Helen Dickinson, Chief Executive of the BRC, has warned that the continued elevated cost for animal feed, energy, and fertiliser, could see prices continue to climb this year. Dickinson added:
‘It was a challenging Christmas for many households across the UK. 2023 will be another difficult year for consumers and businesses as inflation shows no immediate signs of waning.’
A spike in food prices saw increased pressure on households that saw another increase in consumer lending for December. Against an expected £0.9bn, consumer credit lending soared to £1.5bn for November. Despite a splurge in consumer spending, the rise of using credit cards to lessen the burden of the cost-of-living crisis is concerning.
Meanwhile, mortgage approvals plummeted to the lowest level since the height of the Covid pandemic. Banks and building societies filed 46,100 mortgage approvals in November, the lowest figure since June 2020. Anthony Codlling, independent housing analyst, commented on the dropping figures:
‘This is not the news the housing market was hoping for in the first week of the new year. Mortgage approvals are the key lead indicator for housing transactions, lower mortgage approvals today means fewer housing transactions tomorrow.
‘A reduction in housing transactions will hurt all those businesses that are involved in the home-moving process.’
Canadian Dollar (CAD) Supported by US Dollar Strength
Meanwhile, the Canadian Dollar (CAD) managed to hold onto gains as a relative strength of the US Dollar is providing the ‘Loonie’ some modest support.
Despite the mounting concerns of further a global economic slowdown due to China’s Covid surge, the commodity-linked ‘Loonie’ managed to shrug off the fears. With Covid infections soaring since the world’s second largest economy decided to U-turn on its strict Covid measures, Beijing pledges a ‘final victory’ over Covid.
As protests forced the arm of the Chinese government to relax its stringent rules, Covid has swept across the 1.4bn inhabitants who have very little natural immunity from the virus. The Canadian Dollar could start to stutter if threats of another slowdown in the shaky Chinese economy were to materialise, a domino effect on the demand for oil.
Meanwhile, the release of the Federal Open Market Committee (FOMC) minutes due to be released on Wednesday evening, the Canadian Dollar could extend its lead if the Federal Reserve maintained a hawkish stance.
GBP/CAD Exchange Rate Forecast: Improving UK Services Sector to Boost Sterling?
Looking ahead, the Pound Canadian Dollar exchange rate could see further movement with the release of the S&P Global services PMI. An expected stabilisation of the service sector, following two months of declining activity, could provide small comfort for GBP investors.
Meanwhile, the situation in China will be looked upon keenly by CAD investors. Further negative headlines could sap demand for oil, with a return to a faltering manufacturing sector. The commodity-linked Canadian Dollar is highly susceptible to global market sentiment, despite the relative strength of its North American neighbour, the US Dollar.
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TAGS: Pound Canadian Dollar Forecasts