Bank of England ready to sound the alarm with release of inflation report

7 August, 2013

Rob Bastin

Tuesday’s data releases provided further good news for the UK but unfortunately not so much for the pound. Halifax kicked off the morning by confirming a further increase in house prices across the UK of 0.9% in the month of July. Actual property sales were also up with 6% more sales in the first half of 2013. Some analysts however are concerned that much of the rise in prices is down to a lack of availability, forcing up prices as buyers auction against each other for their chosen properties. Next up were the positive figures for UK Industrial and Manufacturing PMI. Both figures were over double the year on year forecasted growth, with results of 1.2% and 2% respectively. This coupled with yesterday’s excellent services PMI data will give confidence to the progression of the economic recovery. The disappointing thing from a currency perspective is that this data provided nothing more than a brief spike for the pound, briefly hitting 2 week highs against the Euro and US dollar before quickly dropping off within the hour. This strongly underlines the strength of the negative trend of the last few months, and equally indicates that the pounds rally of the last few days has seemingly reached its peak. In afternoon trading the NIESR also upgraded their GDP forecast for the UK from 0.6% to 0.7%, but again with no support for the pound. Considering the pounds recent gains and lack of support yesterday, it would seem we have far more to lose over the coming days than to gain. This will not come as pleasant news to most when you consider the big day ahead for the pound! This morning at 10:30am the Bank of England will release their quarterly inflation report, and this will be accompanied by the first speech on the matter from the new governor Mark Carney. The markets are anticipating a good insight into the Bank of England’s future plans on battling inflation, in particular whether they intend to leave the door open for further Quantitative Easing. Inflation has been a thorn in Sterling’s side over recent months and natural concerns will be over the potential losses if Mark Carney’s words indicate any continued fears over inflation levels. In my opinion the pounds current position is such that any negative comments will likely see twice the movement of anything positive. Anyone who is looking at sending money abroad. would be wise to keep close contact with your broker today to discuss the impact of this release on the cost of your exchange.