Posted by Allison on 16 October 2009, 15:11
The latest news reports have shown that inflation has taken another nosedive. But while that may have been expected, it wasn’t assumed that it would fall as far as it did.
And that has led to a fresh round of issues for the British pound.
Apparently it would seem that energy prices have been the culprit of this surprise drop in inflation. But whatever the reason is, it has not done our national currency any good at all. You can read a news story concerning the drop in inflation on the Telegraph website, while more on the effect on sterling is available from the Times Online website.
So where will sterling head to next? And what will happen to the British economy from this point on? It seems as if every single day that passes brings with it some fresh and disappointing news regarding some aspect of the UK economy.
If you read about inflation on the Wikipedia website, it tells you that inflation can be either a good or a bad thing, depending on what else is happening at the time. It also depends on how severe the inflation is.
And what we can see here is that our already struggling currency is now struggling even more. We were beginning to hope that perhaps a lessening of the troubles experienced by the pound was in sight. But this fresh news indicates that it would be nothing more than wishful thinking.
When you go into details, the spectre of inflation becomes quite complicated. It is not necessary to go into such depth here. Our focus is more on the pound and how it will be affected in future days and weeks as a result of this news.
The beginning rate this week – starting on the 12th October – for the UK pound versus the Euro was 1.0836. By Monday night that had dived down to 1.0714. And with fresh news of the inflationary troubles hitting the headlines, the pound found a new low to sink to as a result. The latest figure available at the time of writing was 1.0629 against the Euro.
And it was a similar and predictable story against the US dollar. After kicking off the week with an exchange rate of 1.5983, the figures you would see on your currency converter would be very different now indeed. Monday night had already seen a dip to 1.5820, and just twenty four hours later that had dropped further to 1.5799.
It will be interesting – if not a little worrying – to see how the rest of the week pans out. Will sterling recover slightly after the shock of this news release? Or will it have new depths to go down to as the markets go back to work tomorrow?
It’s always difficult to predict what may happen next. But after several weeks of poor results on the whole for the British pound, this news is hardly likely to set us back on the road to recovery.
We need to start thinking of regaining the strength of the British pound as a strictly long term affair. It may well be that the Euro is trouncing it at the moment, as is the US dollar. But things won’t stay that way forever.
We are all finding different ways out of this recession. We must just keep on going until we find ours.