IFX Market Report: Thursday 19th October 2023

In a surprising turn of events, the UK saw no change in inflation for September, with it remaining at 6.7%. This was due to a sharp increase in fuel prices, which offset the first monthly drop in food prices in two years. This situation continues to put pressure on households during the ongoing cost of living crisis. Food and non-alcoholic drink prices decreased by 0.2% within the month, marking the first such decline since September 2021. This drop was driven by intense competition among supermarkets, leading to reduced prices for items like milk, cheese, eggs, as well as mineral water, soft drinks, and juices.

The UK economy is facing a challenging situation and is on the verge of a recession, with limited options to lower taxes or increase public spending to stimulate growth. This warning comes from a prominent group of economists at the Institute for Fiscal Studies (IFS), who anticipate that the UK will experience a "moderate" recession in the first half of 2024. The struggle for economic growth persists while borrowing costs remain high. Furthermore, the Bank of England's chief economist has suggested that more measures may be needed to bring UK inflation under control, hinting at the possibility of further increases in the base interest rate.

On the other hand, the IMF recently predicted that the US economy will continue to thrive, with a forecast of 1.5% expansion for the next year. This is notably higher than the IMF's projections of 1.2% growth for the eurozone and just 0.6% growth for the UK.

The UK inflation news was positive for homeowners with mortgages as it hopefully puts a halt on any need for interest rate increases. The BOE base rate currently stands at 5.25% however some lenders are already offering fixed rates of 4.79%. Although the inflation positives were there for homeowners, the news combined with talk of recession have seen the Pound fall across the board. GBPUSD was trading at 1.2215 at the start of the week but now resides at 1.21, whilst GBPEUR trades at 1.1477 down from 1.1580 earlier in the week.

Other notable movements are in the Swiss Franc. GBPCHF is currently residing at 1.0877, which aside from a very brief drop to 1.0650 in September 2022 is the lowest it has ever been. EURCHF is currently trading at its lowest ever to 0.9473.

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