Bank of England will not support the Pound
18 October, 2016
Deputy Bank of England Governor Ben Broadbent yesterday used a radio interview to state that the recent fall in exchange rates has been an important “shock absorber” for the UK’s economy, in the wake of the EU referendum result.
Contrary to the Greek crisis of 2014-15, Mr Broadbent noted that it was “extremely important” for an economy to have a “flexible currency” rate to absorb such shocks, backing up Mark Carney’s comments on Friday that inflation would rise due to the lower Pound – something that the Bank of England’s mandate demands – in the ‘Marmite effect’ of higher import prices being passed on to consumers.
Mr Broadbent also ruled out interest rate rises, which are one tool likely to give the Pound a boost, saying that growth and unemployment should not be risked to curb inflation, should it rise above the government’s 2% target.
All in all, for those of you waiting for the Pound to recover, messages from the Bank of England in the last few days are that they will not be taking any action to help you out.
Elsewhere yesterday we saw important Eurozone inflation figures announced exactly as expected, with little effect on the single currency’s value, which stayed broadly flat during the day’s trading.
First of 4 important days for the UK
Moving on to today, we have inflation figures for the UK announced at 9.30am. At the same time on Wednesday, Thursday and Friday, unemployment, retail sales and public sector borrowing figures are released, so we will have a more complete picture of the UK’s economic outlook, post-referendum, by the weekend. Look out for any disappointing figures which could easily send the Pound lower again. Today, consumer inflation for the year to September of 0.8% is expected. Similarly, this afternoon US inflation figures will give us a clue as to whether US interest rates might be going up soon, which would have a bearing on US Dollar rates.
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