Inflation fell back to its target rate of 2% in May 2024, the first time it has been there since July 2021. The pound has strengthened, back up by 0.25% this morning against the euro and close, once again, to its highest point for two years.
Normally a victory against inflation weakens a currency – not because it’s bad news, but because it means that interest rates can come down again, which prompts big currency speculators and investors to look elsewhere for a return – but the markets have looked into the inflation figures and seen that not all inflation is under control. While goods in the shops fell in price (not just the rate, but actual prices), prices of services are still rising by 5.7%. Hence, probably no early rate cut from the Bank of England.
Bad news, therefore, if you hoped your mortgage rate was about to come down. But good news if you’ve got a major transaction abroad that requires buying euros. Good news as long as you lock it in, that is. Otherwise it may not even last the week, with the Bank of England making its interest rate decision tomorrow.
There is more high-level data on Friday, which could move the market, with Retail Sales, the GfK Consumer Confidence reading and the Purchasing Managers’ Index (PMI).
It’s a frantic week on the currency markets.
To lock in today’s elevated rate for as much as two years, call your account manager on 020 7898 0541.
