The pound fell again today after British prices in August grew at their slowest rate since 2016.

Official data showed that prices of good and services, paid by consumers, only increased at an annual rate of 1.17% last month. According to a Reuters poll of economists, it was estimated to hit a rate of 1.9%.

The Bank of England is due to meet tomorrow where a 2% inflation rate is expected, however, the lower-than-forecast rate will indeed be a boost for British consumers.

Sam Cooper at Silicon Valley Bank said:

While the data will likely cause a knee-jerk sell-off in sterling and stoke some volatility, market focus and long-term direction will continue to be driven by parliamentary and Brexit developments.

Before the release of the inflation data, the pound was trading around $1.2480, but then fell 0.3% to $1.2457. 

In a research note to clients, MUFG analysts said:

The pound continues to benefit from building optimism over the potential for a last-minute Brexit deal and more likely a short Article 50 extension which have both helped ease more immediate no-deal Brexit risks.

While investors have been reassured that a ‘no-deal Brexit’ would not manifest on October 31st, the risk of a no-deal in place is starting to become “very real”, according to European Commission President Jean-Claude Juncker.

The cable remained at 88.585 pence against the euro. 

It is expected that interest rates will remain at 0.75%, however, should a ‘no-deal Brexit’ take place, rates could potentially rise or fall, according to policymakers. 

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Dalia Hilmi
Author

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