GBP/AUD Falls After Bank of England Inflation Report

James Baxter Senior Currency Broker GBP/AUD Falls After Bank of England Inflation ReportJames Baxter
Senior Currency Broker
T: 01442 892 062
E: [email][email protected][/email]

GBP/AUD Falls to 2.02

The pound dropped fairly significantly against most of its main counterparts on Thursday after a more dovish than expected quarterly inflation report from the Bank of England. Against the euro, the pound dropped back into the 1.20’s and had dropped by around 1% against the Australian dollar at the time of writing. The graph below shows GBP/AUD movement over the last 7 days.

GBP/AUD exchange rate graph

GBP/AUD 7 Days

The Bank of England announced no change to interest rates on Thursday, keeping the base rate at the record low of 0.5%. UK interest rates have now remained unchanged since March 2009. Previously there had been an 8-1 split amongst the members of the Monetary Policy Committee, with only one member, Ian McAfferty, voting in favour of a rate hike. Thursday’s vote showed that all nine members voted unanimously to keep interest rates on hold, the first time all MPC members had been in agreement in over 6 months. The global economic conditions have deteriorated somewhat since the last inflation report and the pound has lost over 3.5% since November. Inflation in the UK remains at zero percent so the Bank of England are in no position to raise interest rates until inflation returns to the central bank’s target of 2%, a level we’re unlikely to see before 2018.

With all nine members once again in agreement, it now looks unlikely that the Bank will raise interest rates any time soon. The pound has weakened significantly as a result, with some analysts now forecasting a fall of between 15-20% for sterling over the course of this year. The pound performed well over the course of 2015 as speculation mounted over the potential interest rate rise. It has now become apparent that this is a long way off and the pound has weakened accordingly.

The inflation report also showed that growth forecasts for the UK had been revised downwards amid global economic concerns and historically low commodities prices.

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James Baxter
Senior Currency Broker
T: 01442 892 062
E: [email][email protected][/email]