I’m not sure if central bankers do high-fives, but there will certainly be a few thumbs up in the Bank of England WhatsApp chat this morning as inflation beat all expectations to fall to 3.9% this morning.
Great news for some people, including those hoping for an interest rate cut sooner rather than later, but bad news for sterling this morning, which dropped half a percent or so within the space of half an hour.
It could well continue to drop. The wind beneath sterling’s wings recently has been the promise of interest rates being kept “higher for longer”. That can no longer be guaranteed. The Bank will be looking to emulate the apparent success of the US Federal Reserve and European Central Bank in engineering a soft landing for the economy. Reducing inflation without raising unemployment is nicknamed the “immaculate disinflation”, but conventional economics would suggest that interest rates should fall, and that will probably take the pound down too.
So, what should you do if you are committed to a property purchase or other large transaction abroad and are worried this morning.
Firstly, be proactive. We would always advise a call to your trader on 020 7898 0541.
This will, firstly, be useful for allaying your fears. They will explain your options, which might include setting a benchmark rate below which your plans would become unaffordable, or might involve locking in your rate with a forward contract right now, in case the pound sinks significantly further.
You don’t need to delve too far into ancient history to find cases of the pound losing between 5 and 10% within a few weeks. It happened in 2022 (twice), 2020, 2017 and 2016, each time with serious implications for those who had not fixed their rate in advance. I would not wish that on anyone.
