Sterling weakened by close to 1% against the euro from its six-month high a week ago, after the governor of the Bank of England suggested that interest rates could come down before the inflation rate hit its target of 2%.
Today the pound may have been boosted by better news on public finances, with a £16.7bn budget surplus recorded in January. To lock in that rate for the year ahead, call your account manager on 020 7898 0541.
Yesterday’s sharp drop – since largely corrected, with GBP-EUR back up on the month and only 0.5% down on the week – was a warning of things that can always happen with exchange rates. Normally, small changes are quickly corrected, but sometimes they are not.
Fifty years ago, it might interest you to know, in February 1974 the UK interest rate was 12.5%, the inflation rate hit 16% (on its way up to 24% the following year) and you would have got 2.3 US dollars to the pound. This was all in the wake of war in the Middle East, strikes at home and an incoming Labour government struggling and failing to sort out the mess left by the previous Conservative one… No comment!
So, things can change, and we would advise focusing on your own safest course of action, which is generally a forward contract.
Tomorrow morning we will hear how global and national business is viewing the future, with the Purchasing Manager’s Index (PMI) data from major economies. The UK has been doing better than many European economies lately on PMI, despite the UK technically being in recession, but if that changes tomorrow it will almost certainly hit sterling.
