The pound weakened slightly yesterday despite news that an early interest rate hike is on the horizon. There is increasing confidence that the Bank of England will go ahead with a near-term interest rate hike due to higher inflation. This comes after comments from Bank of England officials over the weekend.
However, the markets are focussing on the energy crisis and escalating energy costs, which has caused sterling to weaken. There are fears that ‘stagflation’ could materialise, which occurs when inflation is high but economic growth is slow.
Balance of trade and GDP figures were released for the UK this morning. The trade deficit widened in August, with exports and imports falling. GDP expanded by 2.9% in the three months to August, slightly below expectations of 3%. However, after a dip in July, GDP increased by 0.4% in August month-on-month after consumers increased their spending on leisure activities.
