UK inflation to take centre stage tomorrow

In recent weeks the pound has been making gains against the euro. Average earnings numbers and growth forecasts have increased, which reinforces the Bank of England’s decision to raise interest rates. Furthermore the ongoing Brexit talks have been a lot more positive in recent weeks. Head EU negotiator Michel Barnier told the media that he believes a deal could be reached in 6-8 weeks (November), and only this week reports are suggesting that the UK and EU may have found a resolution in regards to the Irish border. They plan to use technology to monitor goods that pass through the Irish border. As its been heavily documented the Irish border is one of the major sticking points for the negotiations.

However the good run for the pound could be coming to an end tomorrow as UK inflation is set to fall to 1.8% from 1.9%. Raising interest rates tends to mean the general public tend to save instead of spend and that’s the reason inflation falls. The Bank of England’s target is 2%, therefore the Bank of England will be monitoring inflation closely. What they will be concerned about is if the UK secure a deal with the EU and the pound strengthens dramatically, everyday goods will be come cheaper and therefore inflation will fall. For new readers its important to know that UK inflation was close to 0% before the Brexit vote a couple of years ago.

Later in the week, UK Prime Minister Theresa May will travel to Austria to address EU officials. Mrs May will reinforce that her Chequers plan is the only option and will try to persuade EU officials to back it. It will be interesting to see if we receive further commentary in regards to the Irish border as this has the potential to have a major impact on GBPEUR exchange rates.

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