On Friday, the British pound declined against the US dollar, as fresh economic data fanned concerns about a slowdown in the UK’s economy, which is already dealing with inflation that has reached highs in four decades.
Economic data
On Friday, an industry survey showed that the growth in business activity in Britain grew at its slowest pace seen in the last 17 months in July, as inflation pressures surged. This may put even more pressure on the Bank of England (BoE) to deliver a larger hike in the interest rates next month in its policy meeting.
Likewise, official data showed that there was also a 0.1% decline in US retail sales numbers from May. But, this was still better than the 0.3% drop that had been expected by experts.
Sterling’s movements
The British currency recorded a drop of 0.4% to reach $1.1961, but it was still above the low of 28 months that it had touched in the previous week. Moreover, the Sterling was also set to close the week higher by 0.75%, which is the biggest weekly increase that the currency has seen since May.
As far as against the euro is concerned, the British pound recorded gains of about 0.34%, as it reached 84.93 pence. It managed to make a recovery from the lows of two weeks that it had reached on Thursday because of the bigger-than-expected rate hike by the European Central Bank (ECB) that gave the euro a boost. However, market analysts said that people should keep an eye out on spreads in order to predict future movements in the Sterling.
BoE’s decision
Considering the situation of the economy, the Bank of England (BoE) is faced with a rather tricky task of controlling the rising prices, while also preventing a harsh downturn in the economy. Last month, the rising food and petrol prices had driven inflation in Britain to the highest it has been in four decades.
The BoE has been raising interest rates since December last year and has already done so five times. Their next meeting will be held on August 4th and the monetary authority is expected to increase interest rates by 50 basis points, larger than the 25 basis points increase it has done before.
The political turmoil
Another matter that was in focus on Friday was the race between the last two remaining candidates to replace Boris Johnson as the Prime Minister of Britain. Rishi Sunak and Liz Truss are the two candidates and their approaches to fiscal policy are quite different. This could also prove to be an important driver for the British Pound in the coming months.
Market analysts said that changes in the odds, or even in the polls would have an impact on markets and would also result in currency movements. They said that while Sunak maintains a bullish stance where Sterling is concerned, it is a fact that whoever emerges as the winner will be facing a difficult situation.
