UK inflation figures were published yesterday morning (9:30am) which came in at the lowest reading seen for the past three years (Nov 2016). The rate dropped to 1.3%, down on the anticipated 1.5%.
This has raised fears of a potential interest rate cut by the Bank of England due to the reading falling well below the bank’s target of inflation, which is 2%.
There is now a 60% chance of a cut in interest rates at the next meeting, scheduled for the end of this month. If this does happen, you would expect the Pound to fall even further from the highs we saw immediately after the election results in December. The Pound is already down by around 3% since Boris’s majority were given control of Parliament.
Earlier today Michael Saunders of the BoE’s committee stated that “It probably will be appropriate to maintain an expansionary monetary policy stance and possibly to cut rates further, in order to reduce risks of a sustained undershoot of the 2% inflation target,”
He, along with Mark Carney and the two previous members who voted for a rate cut at the last meeting, have all stated they will have to assess the economy’s performance and how it is effecting their views on future monetary moves before the next vote.
With this in mind you could expect the Pound to continue its current slide. However, if the BoE decide to hold off on a rate cut and vote in favour of holding, the Pound may regain some of its recent losses.