Not long ago, there was speculation that the Bank of England could soon choose to increase interest rates from their historic low of 0.25% in an attempt to combat rising inflation. But in recent days, a slight drop in inflation and a concern around wage growth figures made this seem less likely.
Today, the Bank of England’s Monetary Policy Committee (MPC) voted 6-2 in favour of keeping interest rates on hold at their current historically low level of 0.25%. They suggested that there may be an interest rate rise by the third quarter of 2018.
In their accompanying statement, the MPC also downgraded their growth forecast for 2017 from 1.9% to 1.7% and for 2018 from 1.7% to 1.6%.
Why is an interest rate rise on hold?
The last time interest rates were increased was in July 2007, and last August they were reduced from 0.5% to 0.25% in reaction to the Brexit vote.
Since then, there has been debate within the Bank of England about whether to prioritise controlling inflation – which has been increasing due to the weakening of the Pound – or encouraging economic growth.
Two members of the MPC, Ian McCafferty and Michael Saunders, voted to increase interest rates to curb inflation, which is expected to reach around 3% this autumn. However, the remaining members argued against this, as “GDP growth had been sluggish and was expected to remain so in the near term”.
What does this mean for the Pound?
Prior to the announcement, Sterling was at an almost one year high against the US Dollar at 1.3260, but it has dropped back down below 1.3150*. The Pound had been strengthening in recent weeks against the Dollar as US President Donald Trump appears to be struggling to pursue his agenda of slashing taxes and increasing infrastructure spending.
Meanwhile, the Euro continues to surge and the Pound is currently in the low 1.11s*. The Pound has been weakening recently against the Euro after GDP data for the second quarter of 2017 was released, highlighting that the Eurozone is growing at twice the pace of the UK at 0.6% compared to 0.3% for the UK.
With an uncertain political as well as economic landscape, it seems likely that volatility in the foreign exchange markets will remain elevated.
But whatever happens next, HiFX is here to help you with your international money transfers. We can be your eyes and ears in the market, with a range of currency tools and rate alerts to help you monitor market movements. If you spot a favourable rate, you can either make a transfer online straight away with our 24/7 online transfer service, or secure the rate for up to two years with a forward contract or regular payment agreement.
*These figures are based on interbank rates, correct at time of writing. The interbank rate is the rate at which banks and brokers buy and sell money to each other. Private individuals and small to medium sized businesses cannot access these rates. They are therefore provided for indicative purposes only. For a quote, please contact us.
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