UK Inflation Slows as Bank of England Keeps Interest Rates Unchanged

It has been an interesting week for global economies. In the US, a divided Federal Reserve lowered interest rates by 0.25%, the second rate cut since July which was the first interest rate cut for more than 11 years. Meanwhile, in the UK, the Bank of England members voted unanimously to keep interested rates on hold, staying unchanged at 0.75%.

Despite the unity in the BoE’s board members’ decision, the minutes of September’s Monetary Policy Committee (MPC) meeting show the concern that the Bank of England has over the ongoing Brexit Saga. Prime Minister Boris Johnson has vowed to exit the UK from the European Union on October 31st, with or without a deal.

Whilst the MPC posted strong warnings that a no-deal Brexit could result in rising inflation, slowing economic growth, and further drops in the value of the British pound, there was some positive news regarding UK inflation.

The Office for National Statistics (ONS) reported on Thursday 17^th September that Consumer price inflation (CPI) increased in August at their slowest rate since December 2016. The prices of goods and services paid by consumers increased in August by 1.7% on an annual basis. This was better than the 1.9% expected by market analysts, having recorded a 2.1% increase in the month previous.

Analysts Back the GBP

Providing a much-needed boost to the UK economy, the world’s fifth-largest economy, was also news that UK households are experiencing the fastest wage increases in more than 11 years. The combination of rising wages and slowing consumer prices pleased forex traders who backed the British Pound on the release of the news. Thursday saw the GBP/USD make gains of nearly half a percent, as the US Dollar weakened against most major currencies in vibrant forex trading. However, the greenback rallied in the forex markets on the back of strong US Weekly jobless claims data. The US Dollar recovered most of its losses on Friday on news that the number of Americans filing applications for unemployment benefits rose at a less than expected rate last week, indicating strong labor market conditions in the world’s largest economy.

Meanwhile, in the UK, all eyes turn back to the Brexit saga and whether or not it will negatively affect the British Pound and the UK economy further.

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