Inflation sends Pound lower

Yesterday’s official inflation figures showed that prices in Britain remained stagnant in February, with inflation for the year coming in at 0% – the lowest since CPI records began in 1988.

While prices for consumers not increasing might seem like a good thing for you and me, if a period of falling prices were to follow (deflation) then consumers would likely start putting off major purchases such as white goods and cars, causing serious economic slowdown. It is this effect that is troubling markets confidence in the UK economy, and also what helped send the Pound lower in trading yesterday. Against the Euro, the Pound lost another half-cent, which means the Pound now buys nearly 5% fewer Euros than just 2 weeks ago.

The worry is that this trend could easily continue in the run up to the UK election as political uncertainty leads to economic instability if a stable government is not formed quickly after the election; particularly with the economy at such a key stage of its recovery and with deflation fears lurking in the shadows. Alec Salmond says the SNP would try to block any Conservative-led government in Westminster, while in turn Ed Milliband says that Labour will not form a coalition with the SNP.

The Pound has also lost 3% of its value against the US Dollar and 4% against the Canadian Dollar, in the last month.

One currency which has become a little cheaper overnight is the New Zealand Dollar, which weakened after poorer than expected export and trade balance figures released at 9.45pm yesterday, good news for those of you sending money to New Zealand.

Today’s currency news releases

Today we have nothing important out in the UK, except mortgage approvals at 9.30, so very little to give the Pound anything of a boost. The only major data of the day is US durable goods orders (white goods etc) at 12.30 which can affect the US Dollar value; so we are perhaps likely to see trends of the last few days continuing through today’s trading.