Beyond Currency by CurrencyTransfer.com

The Monetary Policy Committee meets later this week to decide whether another hike in interest rate is needed, or if the fourteen that have taken place in this cycle have slowed demand sufficiently for inflation to follow. Over the past two weeks there have been a series of mixed signals, none more so than the employment report for August. Wage inflation has now exceeded consumer price increases, which points to a wage/price spiral continuing, but the unemployment rate is starting to increase which is a clear indication that interest rates are now at a level where they are restricting demand. While it is certain that the five permanent members will vote in unison, there have been some interesting comments from the independent group recently. Swati Dhingra is of the opinion that not only is a hike not justified at this time, but the cycle would have been halted before now. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

It was expected that the economy would have failed to post any growth in July as the poor weather and a series of strikes led the economy to shrink by 0.5%. Another hike in interest rates also contributed to falling demand and led to fears that the good news that has been seen recently about the UK's prospects has ended. It had been predicted that the economy would have shrunk by 0.2%, but construction projects and retailers saw activity fall by significantly more than expected. The country has been walking a tightrope for several months teetering on the edge of a lowdown which has been averted by a series of one-offs. It is possible that the country is already experiencing a mild recession that has been masked. A recession, in which the economy contracts for two consecutive quarters cannot be ruled out as economists have already been expecting the economy to flatline between now and the end of the year. If the issues that have provided positives now turn negative, they could easily result in contraction. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

There has been a remarkable turnaround in the fortunes of the country in the past three months. The country was headed for a damaging recession as a “doom loop” of negative economic developments looked likely to engulf it. Then the IMF produced a report in which it predicted that the UK would not fall into recession this year and the ONS updated its data on the country's post-Pandemic performance and suddenly confidence is beginning to flow again. Yesterday's employment report for August showed that wages have finally caught up with prices and both should now begin to increase in unison. Average wages rose by 8% annually which is likely to be the highest of the three measures which determines the level of the increase in the state pension and other benefits from next April. The “Triple Lock” under which benefits increase each year by the highest of average wages, inflation and 2.5%, was introduced in 2010 by the coalition government as a method of ensuring that the state pension “kept up” with overall wage growth. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Catherine Mann is far and away the most hawkish member of the Monetary Policy Committee. She spoke yesterday of her view that interest rates should continue to rise if inflation remains above the Government's 2% target. She went on to say that in her opinion, it would be better in the long run if the Bank erred on the side of over-tightening rather than bring the cycle of hikes to an end only to be forced to begin again should inflation flare up again over the winter. Mann accepted that her opinion may be wrong but if the Bank had continued to raise rates and inflation decelerates at a faster rate than she expected she wouldn't hesitate to introduce rate cuts sooner than expected. While her views are considered radical, she is showing the kind of proactivity that has been found wanting during Andrew Bailey's term as Governor. Of the nine members of the MPC, five are permanent, the Governor, the deputy Governors responsible for monetary policy, financial stability, markets and banking, and the Chief Economist. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The data that is due to be published this week will go a long way towards determining the path for Sterling for the rest of the year. Tomorrow, the August employment report will be released. It is expected that the claimant count will have increased marginally while earnings have exceeded inflation, meaning that in real terms, people will begin to feel better off. Inflation is likely to have moved slightly higher since the rising cost of a barrel of oil is reflected in the forecourt price of petrol and diesel. The data will show that the inflation is well on the way to meeting Rishi Sunak's pledge to halve the rate of inflation by the end of the year. The economy will have shrunk by up to 0.3% in August but the Q3 results due next month are expected to show marginal positive results. With inflation falling and the economy “bumping along the bottom,” the conditions that will lead to an end to interest rate hikes are slowly appearing on the horizon. Several economists believe that the next meeting of the MPC will agree to a hike of twenty-five basis points in the base rate, but that could be the last in this cycle. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Huw Pill, the Chief Economist at the Bank of England spoke yesterday of the determination of the Bank to “see through to the end” its fight against inflation. Many observers took that as a hint that there will be another twenty-five-basis point hike in interest rates when the MPC meets again in three weeks' time. Pill went on to say he and his colleagues are aware of the unnecessary damage that could be inflicted on the economy if rates are raised too much, but the Bank feels it must concentrate primarily on tackling inflation. Interest rates are likely to stay elevated for some time. Inflation fell to 6.8% in July and while it can be considered to be moving in the right direction, the base rate needs to be at a level where it is restricting demand, but not severely affecting employment and growth unnecessarily. The most recent employment data shows that there is still capacity since the claimant count is constant, while he feels that the country can avoid a recession in the coming months. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

There continue to be more mixed signals this week for the UK economy as a measure of business optimism rose to its highest level since before the Russian invasion of Ukraine, but housing market activity was shown to be 20% lower than it was a year ago. As has been the case in most stories about the economy this year, the Bank of England is behind both headlines. The rises in interest rates that have been taking place for close to twenty months have not just had a significant effect on the headline number of home sales this year, but related trades and services have also been hit. The optimism being shown by businesses is because there is a growing feeling that although inflation remains well above the Government's target an end to the cycle of hikes may be in sight. So far there are none of the telltale signs of an economy on the verge of a recession, like business failures or a significant drop in money supply, but despite the optimism there is also a degree of caution. A prominent economist and journalist spoke yesterday of his disappointment at the collective weakness of the Monetary Policy Committee who he likened to a flock of sheep blindly following their shepherd. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The UK continues to delay additional food safety checks on imports from the European Union since they fear that the additional delays created by performing the checks will create shortages and drive up inflation. This is yet another demonstration of the lack of foresight that accompanied the UK's departure from the EU which has piled additional red tape and additional costs onto firms still wanting to trade with the EU or operate within its boundaries, It is estimated that Brexit has been directly responsible for around 30% of food price inflation since 2020. The necessary border checks to ensure that the origin of products have again been delayed as the Government fears such checks could choke off supplies. The EU supplies 28% of the food consumed in Britain. It is now clear that Brexit was an ill-conceived notion that gained momentum due to over-zealous jingoism Which in the cold light of day, has set the country back at least ten years and is partly responsible for it being unable to shake off high inflation. Several industry groups have welcomed the latest delays to the implementation of further checks since they are likely to make them less competitive and create further issues in supply chains. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

It is expected that inflation will have fallen again when the data for August is published. While that will be welcomed by the Bank of England, it is unlikely to encourage the Monetary Policy Committee to pause the cycle of increases in the base lending rate. Inflation remains a concern, although the focus of the City of London has switched and despite the welcome news that the IMF does not believe that the country is facing an imminent recession, the feeling “on the ground” is different. The output data that was released last week showed that the service sector is beginning to slow and can no longer be relied upon to raise the composite figure above the watershed figure of 50 which divides expansion and contraction. Ben Broadbent, a current member of the MPC and Deputy Governor for Monetary Policy, spoke last week of his expectations, which are also the views of his colleagues, that interest rates are unlikely to begin a downward trajectory for some considerable time. Naturally, Broadbent was unwilling to be any more specific, but market analysts were happy to “fill in the blanks.” Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Although some progress has been made in the fight against inflation, interest rate futures markets are still discounting two further hikes this year. There is also a long-held view amongst economists and market commentators that the base rate will top out between 5.25% and 5.75%, although it would take a significant rise in headline inflation for another fifty basis points in hikes to receive support from the MPC. This week's output figures were “disappointing,” but do show that the Bank of England, despite the market's opinions, is closer to stopping rate hikes than it was previously believed. There is no fixed rule or standard by which to judge when rates have become restrictive upon demand. It is a judgment call which will be made by the MPC. Again, it is unlikely that any decision will be unanimous since at least one independent member who already believes that rates are sufficiently restrictive and need to be allowed to “do their work.” The Bank of England was the first G7 Central Bank to commence rate hikes and the odds now are that it will be the last to call a halt. There is hope but truly little expectation from traders that any hint will be given at next month's rate-setting meeting that a pause will be considered, let alone an end to the cycle. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Bank of England, in common with other global Central Banks, looks at trends in the economy and tends to consider “outliers” as just that, issues that are due to a specific event or issue. Examples of this are the boost to GDP likely to happen due to the England women's football team reaching the World Cup final, or the opposite effect of the additional Bank Holiday that was granted to the country to celebrate the King's Coronation. Yesterday's release of preliminary output data for this month so far is likely to be treated similarly, but it is important to be able to discern the reason that data was out of line and not the beginning of a new trend. The earlier the start of a new trend can be spotted the better for monetary policy, since it allows the Central Bank to get “ahead of the game.” Services output has virtually collapsed, falling from a relatively healthy 51.5 in July to a severe contraction to 48.7 this month. This dragged the composite figure down into contraction territory at 47.9 from 50.8 last month. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The outcome of next month's MPC meeting, the sixth this year, is still on a knife edge. Although inflation has finally begun to see a meaningful fall, Andrew Bailey and his colleagues are “glorying” in keeping the markets guessing. While the level of any advance guidance is a balancing act between pre-empting the committee's vote and being accused of providing mixed signals, the markets should have been provided by now with a set of parameters by which rate decisions are made. Right now, there are three outcomes of the September meeting, a fifty-point hike, a twenty-five-point hike and a pause. Considering that the Central Bank should try to avoid volatility, let alone be the cause of it, Bailey has failed comprehensively to keep the traders, investors and analysts sufficiently informed to a level at which the meeting's outcome is fairly certain barring any unforeseen occurrences. At its meetings, the Governor suggests any proposed change to policy to the committee, they discuss their own personal views and the rationale behind them before a vote is taken that will determine the level of interest rates for the next six weeks. Each members' vote is a matter of public note but given that most of the committee report to Bailey, it feels like the independent members are little more than window-dressing. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The mid to late eighties were a time of momentous change in UK financial services. In 1986, Big Bank took place which revolutionised the way equities were traded which allowed easier access to the market to the “man in the Street.” This was also the time of privatisation, when the country's publicly owned utility companies were sold off, apparently to allow greater competition in the marketplace. However, to most of us all it meant was an opportunity to make a “quick buck” the individual companies were “attractively priced” to ensure the float would be successful. At a stroke, gas, electricity, telecoms, railways, and water providers became the largest privately owned businesses on the newly formed stock market. This was hailed at the time as Margaret Thatcher's great masterstroke. It was designed to increase people's choice but has ended up making the rich richer. Now, thirty-five to forty years later, it is accepted that the entire process was a massive mistake. Rather than providing greater choice, the utility companies have consolidated to form controlling interests in the hands of big business whose main driver is profit not service. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

“Twas always thus.” Despite grand plans to “level up” the country economically by trying to make investment more attractive to business, London and the South East are still propping up the rest of the country. Having shattered the “Red Wall” which divides the country when winning the 2019 election, the Conservative Party set about consolidating their position but delivering change to areas that had been socialist for decades has proven far easier on paper than in practice. Big business has invested heavily in the South East, the infrastructure is already in place, even the geography is against change, with proximity to the Channel Tunnel and another significant driving the status quo. Conservative candidates who were elected in s 2019 are beginning to see the reality of the future as “one term” MPs as two major hub projects, one in Newcastle, the other in Birmingham have been dumped, after years of postponements. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

England's qualification for the women's world cup final which will take place in Sydney on Sunday is expected to provide a £185 million boost to the economy. At the current time when the economy is teetering between positive and negative GDP results, such an event could further disguise the underlying weakness in the economy. To see significant growth in the coming months, the government and Bank of England will need to come together to provide the stimulus to see GDP return to trend. There are two actions which may trigger this. The first would be when Andrew Bailey announces when the MPC considers it to be time to stop the cycle of interest rate hikes. Given this week's inflation data that may come sooner than had been expected, but there is still a hawkish undercurrent to the committee's thinking which may see rate hikes continue until the end of the year. After the meeting which will take place on September 21st, there will be only two further meetings this year. The other action may come in the Chancellor's autumn statement which will take place in November. Despite having constantly said that it is too soon for a reduction of taxes in the UK, it is becoming more and more likely that Jeremy Hunt will decide to use the “nuclear option” since his Party is trailing so far behind in the opinion polls that if they don't take drastic action they will be sent into opposition sometime in the second half of next year for the first time in fourteen years. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Good news about inflation has been in short supply for quite some time, but yesterday the Government and Bank of England will have been buoyed by the news that headline price increases fell by more than one percent in July. While the data had been expected to show a significant improvement, the news was nonetheless gratefully received. Headline inflation that had been at 7.9% in June, came in at 6.8%, while the core, which has the more volatile items like food and energy stripped out, was unchanged at 6.9%. Despite inflation seeing a considerable improvement, it is still far too high for the Bank of England's liking and a further hike in short term interest rates is expected to be agreed at the next meeting of the MPC which takes place on September 21st. The fall in inflation brought the headline to its lowest level since February 2022 and was due to falls in energy prices. The wholesale price of gas has been falling continuously since it made a record high last August, so the fall in inflation had been expected. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The publication yesterday of the July employment report focussed the market's attention, as predicted, more on the possibility of a price/wage spiral than the number of people in work. Average earnings rose by a record 7.8% in the three months to June which will encourage the Bank of England to continue the chain of interest rate increases that began in December 2021. The largest increase in average earnings since records began means that for the first time in a year, wages grew faster than prices. One spin-off of the rise is that the Government's triple-lock on pensions and other state benefits will be in effect for 2024 with a rise like this year's 10% probable. The claimant count rose by 29k, up from 16.2k in June. This is an indicator that the Bank of England's monetary policy tightening is beginning to influence employment, with jobs becoming less plentiful as the economy continues to adjust to Brexit. The level of redundancies is growing as well as the workforce looks more to job security than “job-skipping.” Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

From the mid-seventies to the mid-eighties' redundancy became a significant factor of working life as more firms rationalized their workforce to deal with the slowing economy. It is possible that the same effect is taking place now, with the number of redundancies growing larger month-by-month as firms first reconsider their investment plans and then abandon them altogether. While it was sensible to “stockpile” workers given the cost of rehiring them if the economy rapidly recovered, given the wage demands and shortage of both skilled and unskilled workers, today's employment report for July could deliver the first definitive evidence of the effect that the long-running cycle of rate hikes is having on the economy. The claimant count has been on an upwards trajectory over the past few months, and that is expected to continue, while wage increases may be levelling off. The data that has been released over the current quarter has not really demonstrated any significant slowdown, but the seventy-five basis points of hikes at the past two meetings of the MPC may see tighter monetary policy begin to bite. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Inflation is expected to have fallen last month by more than one per cent, which will provide some encouragement to the MPC for it to consider when to pause or halt entirely the current cycle of interest rate hikes. However, wholesale price increases already in the system may see some of that fall reversed in September. This will be a double-edged sword for one section of the community. The “triple lock” on state pensions and other benefits will be applied next April and is expected to be well above the rate of inflation at that time. At its most recent meeting, the MPC showed a three-way split, with the independent members all having differing views of what the Bank of England should do with monetary policy. Swati Dhingra voted for no change, while Megan Greene voted in line with the permanent members of the committee for the twenty-five-point hike, which was eventually agreed upon, while Catherine Man and Jonathan Haskell voted for another fifty points. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Bank of England surprised no one with its decision to hike interest rates again yesterday, for the fourteenth consecutive time. In the end, it was something of a surprise, however, that a hike of only twenty-five basis points was agreed, considering a fifty-point hike was considered necessary at the last meeting. The Bank of England's Governor, Andrew Bailey, commented at his press conference that the MPC expects headline inflation to fall to 5% by October. He went on to say that the reason inflation is currently higher in the UK than in the Eurozone is due to a more gradual “pass-through” of energy price falls in the UK. It is unclear at what rate energy prices will continue to fall, but he did say that he believes that the price of food and drink has peaked. This was a little odd given the effect of the withdrawal of Russia from its agreement to allow free movement of grain through Ukraine's Black Sea Ports and changes to taxation the UK government introduced this week that will see the price of beers, wines, and spirits rise. Services inflation has risen since May, which is an unwelcome development. Pay growth in this sector has been stronger than the models that the Bank's economists use predicted. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Since he came to power, it has been an obvious policy of Prime Minister Rishi Sunak to be seen to be “getting on with the job.” Naturally far less flamboyant than his predecessor, Boris Johnson, Sunak has not made many significant policy speeches, but that is beginning to change. His only major success has been the delivery of the Windsor Framework, which allowed Brexit to be completed. This was achieved without the bluster and threats that had accompanied the end of the UK's relationship with the European Union, and that has become the “Sunak way.” However, over the past few weeks, the beast appears to have “awoken from his slumber”, seemingly realizing that he won't stand a chance of winning the election by trying to appease every voter, so he has decided to try to win back voters who have voted Conservative, possibly for the first time, in 2019. He, first, risked aggravating the environmental lobby by granting licenses to drill for oil and gas in the North Sea and, just yesterday, deciding to stop treating the NHS as a “Sacred Cow” and expecting it to take the blame for lengthening waiting lists, which are due to “internal protocols” and poor management. He hopes that this new “can't please all the people all the time attitude” will galvanize backbenchers into rallying around, particularly those who are still smarting from the way the Party and Parliament treated Johnson. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

House prices in the UK fell by almost 4% last month as interest rate increases made passing an affordability test more difficult, particularly for first-time buyers. This was the largest fall since 2009, the height of the financial crisis. The fall coincides with mortgage rates rising to their highest level in fifteen years. Currently, a two-year fixed-rate home loan costs, on average, 6.85%. The average price of a house has fallen by 13k since the peak that was reached last August. Currently, a first-time buyer who has a deposit of 20% will see that mortgage payments account for 43% of their salary. This is an increase of 10% over this time last year. The rate of inflation fell to 7.9% last month, and a survey of food production showed that food price inflation has peaked in the past couple of months as the cost of grains and vegetable oils fell significantly. However, food price inflation may be hit by Russia's decision to pull out of the treaty it had agreed to allow the safe passage of grain carriers using Black Sea ports. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The UK yesterday challenged the accepted logic over global warming and climate change by agreeing to issue hundreds of new licenses for exploration and drilling for oil and gas in the North Sea. It had been agreed that for countries to meet zero carbon targets by their agreed time that existing supplies should be mothballed, and a greater concentration would be given to sustainable sources of power. Rishi Sunak, who had already invited the ire of the environmental lobby by pushing back against the Mayor of London's plan to extend the ultra-low-emissions-zone around London, has been accused of a “desperate vote-winning policy” to kick-start the Government's campaign to win the next General Election for which they are trailing far behind the Opposition the opinion polls. Data released yesterday showed that consumer lending rose to a five-year high last month. However, while this would be a sign of a growing economy in normal circumstances, it appears that rather than buying new cars or consumer goods, households are borrowing to supplement their funding of household budgets in the face of a continuing cost-of-living crisis. The continued hiking of rates by the Bank of England, coupled with continued high inflation, is seeing monthly payments on loans, overdrafts and credit cards reach their highest level in a generation. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

HSBC and Nationwide led the way last week in reducing their standard rate for floating rate mortgages as interest rates stabilized. However, the rate for a two-fixed loan was still higher than it was at the start of the month. The peak was at 6.89% earlier. The pressure on the Monetary Policy Committee is expected over the next year as inflation begins to fall, but in the short term, it is expected that there will be another seventy-five basis points of hikes before a pause is announced. During the prolonged period over which the Bank of England has continued its cycle of rate hikes, its Governor, Andrew Bailey, has faced criticism for ignoring the signs, which, with hindsight, has proven to be fairly obvious that inflation was rising, close to out of control. The belief is that if the Central Bank had been more aggressive in its hikes at the start of the cycle, that may not have had to be still hiking now. To defuse that criticism, it has decided to commission a review of its economic forecasting. The man chosen to lead that review is Ben Bernanke, a former Chair of the Federal Reserve. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

A position on the Chancellor's Economic Council is akin to being appointed to the Bank of England's Monetary Policy Committee but without the responsibility. The role of the Council is to “second guess” the MPC and make theoretical judgements on monetary policy, but without the responsibility that those decisions have in the “real world"".” At its latest meeting, the Council, which is made up of seven members including former Bank of England Committee and Karen Ward, Chief Economic Strategist at Investment Bank J.P. Morgan, counselled against further rate hikes for fear that they will push the economy into recession. Ward was also quoted recently as saying she believes that the MPC may be using a mild recession as a deliberate strategy to bring down inflation. However, that was coupled with another comment that no blame can be attached to the Bank for “simply doing its job.” Those two comments illustrate the futility of appointing a shadow MPC which can make pronouncements, often with the benefit of hindsight, without the responsibility of how they affect the lives of real people. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

When the IMF produced its last global review, the Government pushed back against its findings believing that the economy would not contract for the requisite two consecutive quarters this year that constitute a recession. In its latest review, the Fund reversed its prediction and agreed with the Government's view that although it would be “nothing to write home about”, the UK economy would grow in 2023. The IMF believes that the UK economy will grow by 0.4% this year, up from a prediction of a 0.3% contraction in its last global review. While any growth is welcome in the current environment, the economy will remain in the “slow lane” when compared to most other G7 economies. Way out ahead in the “growth race” is the United States, where 1.8% growth is predicted. While the right-wing English press gloried the fact that the German economy will underperform and be the only economy in the group that grow more slowly than the UK, the fact is that with an election on the horizon, Rishi Sunak will need to perform a miracle or rely on the Opposition, completely blowing their substantial lead in the opinion polls to be re-elected. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Chief Economist at the IMF, in delivering the Funds' latest review, made a wide-ranging speech yesterday in which he outlined the Fund's view of the world economy as well as his expectations for growth and inflation. His most significant predictions were around Europe, where he believes that the UK economy, although still struggling to make any headway, only growing by 0.4% this year, will outperform Germany, which is stuck between stagnation and recession. Pierre-Olivier Gourinchas told his audience that the UK's upgrade from a 0.3% contraction in its earlier report was due to stronger-than-expected consumption figures and the confidence that has been derived from the fall in energy prices. The Windsor Protocol has reduced the level of uncertainty surrounding Brexit, but only Germany will perform worse than the UK among the G7 nations. The UK's financial sector has shown “surprising resilience” following the collapse of Credit Suisse and is not showing any signs of a significant issue with bad or doubtful loans. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

There has been outrage over the Bank of England's decisions to award its staff bonuses totalling twenty-five million pounds despite its demand that the rest of the country exercise restraint in pay awards and bonuses. Andrew Bailey's assertion that unsustainable wage rises are in part responsible for stoking inflation appears not to apply “close to home.” While the awards are not necessarily excessive in themselves and are in line with what has been paid in previous years, the revelation will embarrass the Bank's Governor at a time when his and his teams' credibility is low after a series of ill-judged comments. The soaring cost of mortgages that are being reset after their fixed rate period expires is leading to borrowers facing deficits in their monthly outgoings, leaving them facing either “dipping into” savings or using expensive credit cards or short-term loans to pay their household bills. This will undoubtedly lead to a significant downturn in retail sales which will, in turn, feed into a continued downturn in overall economic activity. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Last month's fifty-point hike in the base rate of interest is being considered a “rush of blood to the head” that came because of the headline rate of inflation in May remaining unchanged. Using the same logic, the market expects the MPC to revert to its staid policy of twenty-five-point hikes that have become its “staple offering” for almost the entire period of its current rate hike cycle. The meeting, which takes place next Thursday will be the first since Silvana Tenreyro completed her stint as a member, and it is unlikely that her “ultra-hawkish” views on inflation will be continued by her replacement, Megan Greene. Greene who will bring a wealth of international economic experience to the role will take time to bed into the role just as her predecessors have. With Michael Saunders having left almost a year ago and Tenreyro having just left, the MPC has been shorn of two economists who believed that rates would have risen faster in response to the factors that were driving inflation. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

This week's publication of inflation data for June illustrated how much more the Bank of England could have done had it not been timid about the effect its actions could have had on the economy. The Bank and the Treasury have not worked in tandem to bring inflation lower, and it is as if the two agencies do not talk to each other. There is little question that the actions of the Chancellor, Rishi Sunak, planted the seeds that eventually grew into the highest rate of inflation in a generation, but the Bank of England has lacked the courage seen in other G7 nations to “take the bull by the horns” and tighten monetary policy significantly faster than it has. Now, with inflation beginning to retreat, due in part to their most recent action in hiking rates by fifty basis points, they are left wondering if they could have been more aggressive. In the seventies and early eighties, it was said of the economy, which was plagued by industrial action which made union leaders into TV celebrities, that the UK suffered from a malaise which emanated from a nation living in the past and trying to repeat the energy created by the post-war years. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The headline rate of inflation fell to 7.9% in June, the lowest it has been in more than a year. Inflation had been predicted to fall from the rate of 8.7% seen in May to 8.2%. The market immediately divested itself of long Sterling positions, believing that the fall in the rate of inflation means that the Bank of England is less likely to feel the need to add a further fifty basis points to the base rate of interest. While this is one scenario, the Bank may also consider that having seen the effect of a larger-than-expected hike last month, they may feel empowered to “repeat the dose.” The Chancellor welcomed the news, saying that the Government understands that high price increases are still a huge worry for households and businesses. The fall in the rate of inflation has seen forecasts for the peak in the base rate drop from 6% to 5.75%. It is going to be difficult to predict the further seventy-five basis points that are predicted to be added will be in the twenty-five-point hikes or another fifty, followed by twenty-five a little later in the year. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Rishi Sunak has invited business leaders from several sectors of commerce to join a new initiative he has started to “turbocharge” economic growth. CEOs from companies such as AstraZeneca, Sainsbury, and BAE Systems are among those joining the Business Council. The fourteen members of the council are considered leaders in their field and represent some of the country's largest employers. Sunak was “at pains” to say that this will not be just another talking shop, and the issues that are raised, and the proposals that are considered will be fed directly into Government policy. The Prime Minister is keen to demonstrate that there is room for a joint initiative between the public and private sectors. The CEO of BAE Systems, Charles Woodburn, spoke of his belief that now more than ever, it is important that the Government work closely with industry to ensure that every opportunity is carefully considered to drive economic prosperity forward. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

In times of high inflation, the delicate balance between fiscal and monetary policy needs to be tightly controlled because if they become unbalanced, it can prolong the “economic agony” being experienced by the country. It was not very long ago that the Government was saying that public sector pay awards above 5% would add to inflation and cause the Bank of England to tighten monetary policy as a pay/price spiral developed. In the past few days, pay increases of between five and seven per cent have been announced while the Bank of England recently raised interest rates by fifty basis points, in a departure from the twenty-five that had become the “norm” over the past eighteen months or so. The level of Government borrowing is already at 100% of GDP and is set to rise even further in the coming years as high-interest rates increase the debt servicing burden while the government is still trying to pay for the support that was provided during the Pandemic. Add to that an ageing population where there are fewer tax receipts and the “triple lock” on the state pension where an annual increase guarantees that pensions will not lose value in real terms, and the dilemma facing the treasury becomes apparent. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Andrew Bailey has, rightly or wrongly, become the face of unacceptable high inflation. In his annual Mansion Speech at a dinner hosted by the Lord Mayor of London, Bailey spoke of the resilience of the UK economy and the fact that, in his opinion, it can stand further hikes in interest rates. The Bank surprised the Market last month by raising interest rates by fifty basis points as inflation remains stubbornly high. Bailey believes that since food inflation has peaked that the overall rate of inflation will fall quickly, and Rishi Sunak's pledge to halve the rate of inflation by the end of the year remains attainable. Since December 2021, interest rates have been hiked from 0.1% to their current level of 5%, yet they still don't yet appear to have reached a level at which they are restricting demand which remains strong. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Bank of England has been hiking interest rates for almost twenty months to reduce inflation which rose into double figures earlier this year. They have been completely transparent about their intentions, with the Governor providing the market with a reasonable amount of advance guidance. The Bank's actions have signalled the end of an era of low inflation and low interest rates, which stretches back to the financial crisis of 2008. Over roughly the same period, the mortgage market in the UK has evolved to such an extent that now, around 80% of home loans are fixed. It is common for loans to be fixed for a period of two or five and occasionally ten. As short-term interest rates have risen over the past twenty months or so, borrowers have been insulated, that is until their loans are reset using the current higher interest rates, and now they face seeing their repayments often double or, in extreme cases, treble. This is concerning and, in many cases, catastrophic, but who is really to blame? Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Catherine Mann is the most hawkish of the independent members of the MPC. She has been voicing her concerns about the effect of high inflation on the economy for some time and voted for the fifty-basis point hike in interest rates at the most recent meeting of the rate-setting committee. In a recent speech, she spoke of her belief that inflation is becoming embedded in the economy and very soon the Bank of England will be powerless to eradicate it using “conventional” methods. She agrees with the Governor that there is unambiguous evidence that firms are using the current crisis to maintain, and in some cases, increase their margins. She believes such practices are a prime cause of how inflation will become a “fact of life” again, and must be dealt with as a matter of priority, It is easy to see obvious examples, like the forecourt price of fuel, but beneath the surface, the practice is becoming so widespread that it is becoming easier to name the sectors of the economy where it is not happening. Last week the Treasury sold £4bn in Government debt at a price that equated to 5.6% per annum. That is higher than the cost at the height of the Liz Truss inspired crisis that threatened to swamp the economy last Autumn. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Government, already a considerable distance behind in opinion polls, has decided that it won't try to “bribe” the electorate by cutting taxes in the run-up to the General election that has to take place before January 2025. The Chancellor of the Exchequer, Jeremy Hunt, has admitted that the current economic conditions in the country make any pre-election cuts in his Autumn statement “unlikely.” Following Rishi Sunak's pledge to halve the rate of inflation by the end of the year to around 5%, Hunt will not add billions to demand while the Bank of England is tightening monetary policy to reduce it. Hunt has already said that achieving the Cabinet pledge on inflation will be difficult to achieve. The Conservative Party, which has appeared to be on the brink of civil war constantly since David Cameron's departure as Prime Minister seven years ago, will need to use the summer recess of Parliament to regroup and try to find a way to eat into Labour's lead in the polls. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Governor of the Bank of England spoke yesterday of the need for regulators to act against retailers who are taking advantage of the current situation to keep the price of their products high to protect their margins and increase their bottom line. Andrew Bailey's comments come after it was revealed that drivers had paid over a billion pounds more for fuel at supermarkets over the past year as retailers tried to increase their profit margins. Jeremy Hunt held talks recently with a wide range of retail bodies to discuss ways in which those struggling with the cost of living are not being unfairly targeted. There have been complaints recently that two highly emotive sectors are taking advantage of the situation. The price of fuel is one, while banks are also being accused of raising rates to borrowers as soon as, or in some cases before, official rates are increased, while the rates paid to savers are still low. Bailey believes that the headline rate of inflation that remained at 8.7% will begin to fall rapidly towards the Bank's 2% target towards the end of the year. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The risk of a hard landing for the economy has been heightened by the recent actions of the MPC in hiking interest rates by fifty basis points. Economists at the OECD believe that the base rate of interest could now reach 7% as the Bank of England appears determined to stamp down hard on the rate of inflation, which has remained stubbornly high. It is expected that the base rate will rise to 6% by the end of the year, and depending upon the path of inflation in the New Year, they are able to envisage a scenario where rates now touch 7%. The rise in interest rates throughout the first and second quarters has not had the effect of dampening demand as they come closer to restrictive territory. The “neutral rate” has become something of a “moveable feast” with no one at the Bank prepared to commit. With the highest headline rate of inflation in the G7, the possibility of a further fifty basis points being added and either the next MPC meeting or the one following the likelihood of there being a hard landing where the economy falls into a recession has increased. Neither Jeremy Hunt nor Andrew Bailey appears to be particularly perturbed by the prospect of a mild recession, although both have been at pains to say that it is not their goal to see the economy contract as a method of containing rising prices. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

There was some good news and some bad for the Bank of England and the economy yesterday. The average interest rate on a five-year fixed mortgage reached 6% as the home loan market continued to react to the prospect of the Bank adding further hikes to the base rate. This will reverberate throughout the entire housing market and the wider economy. The good news came from J.P. Morgan, who published a report in which it exonerated the Bank from the blame for the increases that have taken place over the past eighteen months. The U.S. Bank which has its European headquarters in the City, argued it had “little or no choice” but to continually raise interest rates since a failure to do so would have led to a deeper downturn, even though it believes that the country faces a mild recession in the Autumn/Winter. It is hard to blame the Bank of England for “simply doing its job,” the report went on to say, particularly since neither politicians nor analysts have not offered any viable alternatives. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The decision taken by the MPC last month, in response to the May inflation data, has brought the prospect of a recession close according to a renowned investment manager in the City. The fact that the Bank was forced to change tack on its cycle of interest rate hikes after so long shows that it is far from being on top of the problem. The data releases for May and the current level of inflation have led Schroders Investment Managers to believe that the base rate will reach 6.5% later in the year. It is probable that a further fifty-point hike will be agreed in August before the Bank feels comfortable returning to two twenty-five-point hikes later in the year. Megan Greene, who joins the MPC this week, spoke in an article published yesterday by the Financial Times of her view that Central Banks would do well to be cautious about expecting inflation and therefore interest rates would settle back down to their now long-established level. There are too many imponderables within the global economy currently to be certain that “normal service will be resumed.” Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Silvana Tenreyro has been an independent member of the Bank of England's Monetary Policy Committee since August 2017. Over that time, she has “grown into” her role as its most dovish member. In her final speech as a member of the committee, she spoke of her concern that if the Central Bank continues to hike rates, it will drive inflation to below the Government's target of 2%. She believes that the economy has suffered an external shock as energy prices climbed over the past eighteen months, and while it was correct to hike rates through 2022, the hikes that have taken place over the past few months run the risk of being “counterproductive”. This is the type of radical thinking that looks beyond the “norm,” that several MPs believe should be encouraged by having fewer Bank of England employees on the MPC and more independents. Members of Parliament believe that the current makeup of the committee runs the risk of adopting “groupthink,” in which they vote as a bloc, thus negating the role of the independent members. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Andrew Bailey has defended the fifty point rate hike agreed by the MPC last week, while at the same time tried to explain to the market that it is not the Central Bank's goal to see unemployment rise, although the committee is well aware that firms will need to “rationalize” their workforce as they experience a drop-off in demand. Headline inflation is still “far too high”, and the Bank believed that it had to make a statement of serious intent when the May price data was released. Having voted for a twenty-five pointy hike last week, Silvana Tenreyro, speaking at the ECB annual conference in Portugal, shared the belief that she holds with another independent member of the MPC, that pay growth and core inflation are set to slow considerably and rather than further hikes, the Bank of England may be forced to cut rates later in the year to stimulate the economy. That is, however, not a view held by a majority of the MPC, who acknowledge that their actions will slow the economy, but not to such an extent that it will contract over an extended period. Interest rates may have now reached a “neutral position” where they are neither supportive nor restricting demand. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Speaking at an event hosted by the ECB yesterday, Andrew Bailey continued the hawkish rhetoric he used when announcing the fifty-basis point increase in interest rates last week. He told the assembled journalists that having studied the surprisingly bad May inflation report that a strong message needed to be sent to the market. There was discussion about hiking by fifty basis points over two meetings, but, on balance, the MPC felt that a single rise would hold a more effective message. The effect of the employment and inflation reports made it clear that if the Bank was to be considered serious about the need to bring inflation under control, a strong message needed to be delivered. The Treasury is believed to be concerned about the comments attributed to Bailey recently in which he was sanguine about rate hikes raising unemployment as demand in the economy. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

Backbench members of the ruling Conservative Party are very used to trying to find a scapegoat to deflect the blame for their often-poor performance. This was particularly clear during the Pandemic, and it is happening again as the economy stumbles along. It is more due to luck than judgment that the country looks likely to just about avoid falling into recession. The scapegoat this time around is Bank of England Governor, Andrew Bailey, who is a solid technocrat who lacks the charisma of his predecessor, Canadian, Mark Carney. Carney was struck in the mould of earlier Chairmen of the Federal Reserve and commanded the respect of politicians and businesspeople alike, while Bailey appears to be a little “lightweight” for the role. Therefore, he appears to be an easy target to blame for the current cost of living crisis and is facing pressure to resign from the aforementioned MPs. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

In his speech following last week's rate increase announcement, The Governor of the Bank of England, Andrew Bailey, spoke of his concern that at least part of the continued rise in inflation is being caused by what he called unsustainable wage increases. There is no reliable data for the level of pay settlements that have been agreed, but in the public sector, the Government has tried to stick to the pay award that has been recommended by the independent pay arbiters. Bailey has used this reasoning in the past but fails to abide by his words closer to home. Each of his colleagues who make up the Monetary Policy Committee earns more than £300k a year, with Bailey himself taking home around £600k in pay and bonuses last year. It is felt that pay and, more particularly, bonuses should be linked to productivity, output, and performance, but with inflation remaining uncomfortably high, it is hard to make a case for anyone on the MPC to have performed at, or above, expectation. At last week's MPC meeting, the hike was agreed by a majority of 7-2. In the past, the two less hawkish members, Swati Dhingra and Silvana Tenreyro, have voted to leave rates unchanged, this time, both voted for a twenty-five-point hike. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Prime Minister, in a TV interview yesterday, said that the people of the UK must “hold their collective nerve” in the face of continued high inflation. He went on to say that fighting inflation is the priority for the Bank of England, and the Government can do little to influence it other than supplying all the support it can. Following its surprise fifty basis point hike in short-term interest rates last week, the market now believes that the Central Bank is taking rising prices seriously, having adopted a relatively low-key stance to the situation despite hiking rates consistently since December 2021. Analysts believe that the peak for interest rates will now be 6%, and this will be reached by the end of the year, by way of two or three further hikes. Kwasi Kwarteng, the Chancellor under Liz Truss' disastrous, albeit belief spell as Prime Minister last year, spoke out at the weekend, criticizing his replacement, Jeremy Hunt, for almost welcoming the possibility of the country being plunged into a recession as the Bank continues to hike interest rates. While a recession is considered the “nuclear option”, to drive inflation down towards the Government's target, both Hunt and Andrew Bailey have considered the possibility publicly, although neither is likely to welcome a contraction, particularly since the economy is still below the level it was at the start of the Pandemic. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Bank of England raised interest rates for the thirteenth consecutive meeting yesterday as the entire market expected they would. However, they surprised almost everyone by hiking by fifty basis points. This was most likely in reaction to the May inflation report, which was released the previous day and showed that headline inflation was unchanged at 8.7% while the core actually rose to 7.1% after a reading of 6.8% in April. The base rate of interest is now at 5%, its highest level for fifteen years. The market, although taken aback by the newly hawkish stance of the Bank, appreciated that it was taking the lead in the fight against rising prices after an extended period in which it made a series of almost grudging “dovish hikes” each of twenty-five basis points. This contrasted with the more proactive stance taken by the ECB and FOMC, each of which have hiked rates in larger increments over a similar period. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

If there were any lingering doubts over whether the Bank of England would raise interest rates when the vote takes place at its meeting which concludes later this morning, they were dispelled by the publication of the May inflation report. Headline inflation was unchanged last month at 8.7% as the continued fall in energy prices was offset by the continued excessive cost of foodstuffs. While a twenty-five-basis point hike in short-term interest rates was virtually certain before the data was released, it is now “baked in”. The Office for National Statistics, when considering the data and the lack of any change, particularly given that the Bank of England has been raising rates constantly since December 2021, believes that there is little option but to allow the economy to fall into recession as the “nuclear option” to curbing inflation. While prices are rising across the board, it's the repricing of fixed-rate mortgages that is having the most effect on the public consciousness. During Prime Minister's questions in Parliament yesterday, the opposition leader, Sir Kier Starmer, clashed with Rishi Sunak over the Government's handling of the cost-of-living crisis. However, he was particularly careful to put forward suggestions for what the Labour Party would do if, or more likely when, it comes to power. When compared to the last time there was a series of concerted interest rate hikes, over two decades ago, there were significantly fewer fixed-rate mortgages than exist today. Therefore, the ability of the Central Bank to affect inflation is “diluted” as the effect of rate hikes is spread over time. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

An eminent consumer affairs expert in the UK spoke yesterday of how he had warned his clients of the impending mortgage “ticking bomb” as long ago as last Autumn. He also expressed surprise that mortgage advisors who are now scrambling to find new fixed rate deals didn't act more proactively at the time. The Chancellor told Parliament yesterday that the Government was not about to provide support for those who have seen the interest rate on the two-year fixed rate mortgages more than treble in the past three months. A number of City analysts believe that an unwelcome side effect of the Pandemic has been that there has been a growing reliance on Government support. The public has become used to schemes like “eat out to help out” and seeing the property market supported by stamp duty holidays. Unfortunately, the current mortgage crisis is little more than a tough fact of economic life. Interest rates do go up as well as down, a detail that has become lost on members of the public who have travelled through half of their “mortgage journey” never having experienced a single rate hike, let alone a series of them. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.

The Government confirmed yesterday that having provided support for businesses trying to cope with Brexit and families dealing with the issues created by the Pandemic, there will not be any backing provided for those currently struggling or facing significantly higher mortgage payments soon. While lenders have removed hundreds of mortgage products from their “shelves” as uncertainty dominates the market, interest rates continue to rise. Although there is a link to the Bank of England's continual hiking of interest rates, the reason that the mortgage market is so affected is due to the lack of clarity over when rates stabilize. The cost of a typical two-year fixed mortgage is now above 6% when eighteen months ago when thousands of fixed-rate loans were repriced, they were at, or below 2%. There will be no support offered to borrowers in the form of stamp duty “holidays”, or other measures as were seen during the pandemic. Beyond Currency Market Commentary: Aims to provide deep insights into the political and economic events worldwide that can cause currencies to change and how this can affect your FX Exposure.