Inflation in The UK has risen for a second consecutive month in November, moving further away from The Bank of England’s two percent target as last month saw a fairly significant rise compared to October. Inflation in October had ticked up to 2.3% which had been the first increase in three months, but we have now seen Inflation climb further to 2.6%, mainly due to higher costs in Clothing, Petrol & Diesel when compared to the same time 12 months prior. Tobacco product prices also saw increases as a Tobacco Duty was announced in Octobers Budget.
Although we have The Bank of England’s rate decision tomorrow, it is unlikely we see any changes to current rates with markets anticipating a pause on current interest rate levels. Moving into the New Year however, markets are seemingly pricing in an Interest Rate cut in February at 53% which is marginally up from 48% prior to this morning’s release.
Crucially Pound Sterling hasn’t dipped off this morning, although there was an initial drop after the release but crucially the Inflation figures met market expectations and therefore kept GBP at current levels. What this release has brought to the fore though, is that we’ve got Inflation rising, Wages rising but less jobs becoming available whilst economic growth has now experienced two back-to-back months of stagnated growth which doesn’t bode well. Especially when considering that stagnated growth is usually what we see before a recession hits. Usually in this situation, central banks would be inclined to reduce interest rates to allow businesses the opportunity to potentially hire more employees, whilst consumers would have a bit of breathing space on their own lines of credit and spending so crucially tomorrow’s minutes after the meeting will give us a much clearer idea as to when The Bank of England are looking to cut rates.
Sticking with Central Banks, we have The Federal Reserve in The US with their rate decision this evening. Markets are expecting a 25 basis-point cut so we shouldn’t see much movement off the back of this, however the split amongst members for and against will paint a bigger picture for future decisions and any particular guidance for the first quarter of 2025 could bring some volatility towards USD currency pairs.
GBP/EUR 1.2083 GBP/USD 1.2679 GBP/AED 4.6582
GBP/AUD 2.0104 GBP/CHF 1.1333 GBP/CAD 1.8174
GBP/NZD 2.2149 EUR/USD 1.0483 GBP/ZAR 22.9260