British Pound’s Gains Viewed Unsustainable in Cost-of-Living Crisis

The British pound sterling was higher yesterday, Wednesday, August 17, 2022, after the United Kingdom’s Office for National Statistics or ONS announced the inflation rate.

The country’s inflation rate hit 10.1 percent last month. However, foreign exchange experts believe the British pound’s latest gains are not sustainable amid the cost-of-living crisis adversely impacting the consumers.

We want to help our readers holding British pound units to stay up-to-date with the latest foreign exchange news. We believe sharing this report on our website will keep them properly informed.

According to the news posted online by forex reports outlet Pound Sterling Live, the British pound was higher following the 10.1-percent inflation rate declaration yesterday.

This inflation surge beat economists’ expectations by a considerable amount. Additionally, it is more than five times higher than the Bank of England’s aim.

The new 40-year high for inflation translates that another 50-basis-point hike from the United Kingdom’s central bank this coming September is likely.

The ONS cited that the inflation rate’s 10.1-percent surge year-on-year in July is ahead of anticipations of 9.8 percent and June’s 9.4 percent.

Core inflation increased 6.2 percent year-on-year, which is ahead of anticipations for 5.9 percent and June’s 5.8 percent.

The British pound’s initial reaction was to climb higher, and this is a classic knee-jerk reaction that algorithms most likely drove.

How long the British pound can hold its latest gains is unsure as these details were an unfavorable surprise for the British economy.

Foreign exchange analysts cited that the prospect of higher interest rates would usually support the British pound as this scenario means higher yields on British monetary assets for foreign investors.

Nonetheless, they said that stagnating economic growth and high inflation are possible fundamental headwinds for the United Kingdom’s official currency.

Hence, foreign exchange analysts believe the longer-term outlook is surely challenged, despite the initial response by the British pound to climb higher.

They also remarked that losses by the British currency are possible from now on, specifically against the US dollar.

Higher food prices pushed inflation in the United Kingdom to its present figure. The cost surge is anticipated to peak in the autumn when household energy bills are expected to rise sharply.

Food prices increased 2.3 percent between June and July. This increment is the fastest monthly surge since 2001, per the ONS. Consumers can notice price increases in food staples like eggs, bread, cheese, cereals, and milk.

Based on the Bank of England’s prediction, inflation is still a couple of months away from its anticipated summit, which is not expected until this coming autumn when the cap on household energy bills gets reset.

The United Kingdom’s economy could enter an extensive recession at that point as expensive energy costs restrain businesses and result in a drop-off in consumer activity.

British households are warned that the average energy bill may climb to 3,500 British pounds a year in October, or about US$4,240 at the time of writing this news, which is triple from one year ago.

We think the British pound’s latest climb will not really help the consumers in the United Kingdom. After all, these past few months witnessed that nation’s relentlessly rising inflation rate.

This dismal economic reality is sounding an increasingly loud alarm regarding a cost-of-living crisis, with essential groceries and other services and products’ costs increasing.

We also gathered that the British people’s wages are still not keeping up with the increasing prices of commodities and services.

We do hope the Bank of England does its best to tackle the high inflation and perform measures to control the British pound for the benefit of the United Kingdom’s citizens.

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