Why the Pound Is on a Winning Streak and the Euro Is Feeling the Lag
All of a sudden, the British pound rose by 0.3 % this morning, hugging the US dollar just after 6:00 a.m. GMT. It has now touched levels we haven’t seen since March 19— a tidy little climb to 1.27513 per dollar. Meanwhile, the euro has taken a tumble against the pound, slipping the same percentage and landing on its lowest point since March 11 at 0.85152 per pound.
Inflation: The Real Story Behind the Stats
Why is the pound buzzing like a hedgehog? The latest inflation figures for April were a bit softer than market noses predicted. Annual inflation slowed to 2.3 % from 3.2 %—i.e., a gentler walk than the 2.1 % expected by the Office for National Statistics (ONS). Monthly inflation, however, kept rolling at 0.3 %, still nudging higher.
When you strip out the feast‑fueled volatility of food and energy, core inflation was still cooling, but only to 3.9 % from 4.2 %—less biting than the markets had hoped. In short: prices for homes, gas, and electricity have eased, giving the economy a Breathing space.
What This Means for Interest Rates
The Bank of England (BoE) doesn’t look too surprised. The data has still confirmed the theory that the BoE might knock a rate cut off the table by next June—and then another by August, almost sure as a holiday in August. The overall view is that “higher is higher,” so economists are poised to keep rates elevated for longer to keep inflation at bay.
- Higher borrowing costs could harden the real bond yields, tightening the credit markets.
- Renting and mortgage affordability may suffer, especially when the housing market is already wrestling with sky‑high rates.
- Growth might stall if borrowing costs outpace the marginal benefits of spending.
Admittedly, the longer we keep these rates tinged, the more it will stir fresh tightening vibes. We might see a slower economy and a chill in the housing market’s defence of high mortgage rates. But for now, it’s a delicate balancing act that even money gods can’t entirely control.
Borrowing, Spending, and the Public Budget—Where’s the Cash?
Now for the money talk: Public borrowing peaked at £19.6 billion in April—an all‑time high for the year, up from £12.1 billion in March. Meanwhile, the government’s spend farmed in at £111 billion last month, a rise of £4.4 billion compared with the same period last year. This pile‑up is partly due to a turbocharged rise in social benefit payouts and a heavier doling out of goods, services, and investment.
But the parasite is in the weeds: subsidies are being stubbed—especially energy subsidies—which has peeled away a bit of the financial cushion that would normally keep the less affluent afloat.
Production Costs: Mixed Signals
April’s producer price data is a cocktail of signals. Input prices climbed instead of slipping, turning a March contraction into an unexpected 0.6 % rise. Factory gate prices, on the other hand, nudged up slightly by 0.2 %—a modest beat that fell short of expectations.
Quick Takeaway
Key numbers worth a quick glance:
- Pound to Dollar: 1.27513 (up 0.3 %)
- Euro to Pound: 0.85152 (down 0.3 %)
- Annual inflation: 2.3 % (vs. 2.1 expected)
- Core inflation: 3.9 % (vs. 4.2 expected)
- 10‑year gilt real yield: 1.937 % (slightly below 2016 highs)
- Public borrowing: £19.6 billion
- Govt spending: £111 billion
So, while the pound is rattling on a gentle upward climb, the euro’s falling back. Inflation might be softer but still stubborn, and the central bank’s rate story is still playing out. Watching the markets to see how quickly the pound will climb further or the euro will lean back is probably the only way to keep your wallet in its lane.
