Pound suffers as inflation declines

The pound suffered another day of significant losses yesterday on the back of a Core Inflation figure that continued to show inflation is in decline in the UK. The forecast figure was expected to show a modest rise to 7.0% due to factors such as bad weather and rising fuel costs, but the result actually showed a drop from August’s 6.8% result to 6.7%.

This has poured some uncertainty on the market confidence that the Bank of England will raise for a further (and expected final time) today at their noon meeting. If the Bank of England does raise for the 14th successive meeting expect to see a modest gain for sterling, although the split of votes from the 9 member Monetary Policy Committee will also be critical, remember the market wants to see unanimity in their decisions, so a split MPC is something to look out for. 

Sunak U-turns on net zero pledges

Late in the day yesterday Rishi Sunak and the government announced a raft of reversals on the 2019 Manifesto of Net Zero, including pushing back the banning of the sale of Petrol and Diesel vehicles from 2030 to 2035. Bringing the UK’s pledges largely in line with most of Europe. Unfortunately for the Sunak government, many major businesses such as Ford have already invested heavily into the 2030 pledge and this reversal has been met with anger and frustration from business leaders, the market response has been largely muted, but an indecisive government will not be beneficial to the pound. 

Rate cuts expected from the US Federal Reserve

In other news, the Fed held funds in the US Federal Reserve held interest rates at 5.50% – further indicating that the cycle of rate rises from central banks is coming to an end, expect other central banks to cut rates as soon as the Fed start to cut, which is expected to begin in 2024. 

The Bank of England’s noon decision is the key data point for the day and will dictate much of the market movement in the course of trading. US unemployment claims will follow shortly but will largely be lost in the weeds if the BoE Result is a big surprise in either direction. Tomorrow ends the week with a raft of releases from the European, UK and US Manufacturing and Services Sectors, as well as UK Retail Sales, so we could end the week with a bit of a flurry of activity.