Pound improves following recent vote on interest rate rise
Following hints from the Bank of England that interest rates in the UK could rise from as early as November, the pound has risen substantially against the Euro, reaching its highest level in over eight weeks.
On Friday 15 September, the Bank of England’s nine policymakers held a vote on whether to increase UK interest rates, with seven out of the nine voting against the idea of a rate rise from 0.25% to 0.50%.
Rate Rise Soon
However, the Monetary Policy Committee (MPC) afterward hinted that the rates could increase soon.
Minutes from the meeting revealed the MPC as having noted that the withdrawal of some monetary stimulus over the coming months would probably be an “appropriate” strategy, in order to ensure that the UK’s inflation levels reached their target.
If there were to be a rate rise at any point during the coming months, it would end a full decade of lower interest rates in the UK, and could potentially have a substantial impact on the overall performance of the pound, even in the current uncertain economic climate post-Brexit.
In light of the MPC’s comments, the pound reached a rate of 1.113 against the Euro, which is the highest rate for nearly two months.
Live Chart Euro/Pound:
Inflation Hints At Earlier Rate Rise
Both the relative strength of the Euro and the current uncertainty surrounding Brexit have caused relentless volatility in the strength of the pound over the last year, with the UK currency haven fallen by around 10% in total versus the Euro and the US dollar. In some holiday exchange branches, the pound has actually fallen lower than parity, affecting many British holidaymakers during the warmer months.
Earlier this week, the pound enjoyed an initial climb following the news that UK inflation had risen by more than many people – the Bank of England included – had expected. The total inflation figure reached 2.9%, a full 0.9% than the bank’s targets.
Unemployment in the UK also reached a 42 year low figure, suggesting a still-strong economy.
It remains to see how many further fluctuations in the pound’s performance will occur in future, with the UK’s economy still in a period of uncertainty as the Brexit negotiations are taking place.