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Pound holds steady following election announcement, inflation data

May 23, 2024

Key points:

  • The pound held at $1.2722, near a two-month high after inflation data and election announcement.
  • British inflation rose by 2.3% annually in April, nearing the Bank of England’s target but slowing less than expected.

The British pound held its ground on Thursday, remaining close to multi-month highs, a day after Prime Minister Rishi Sunak announced a national election and new data revealed that inflation in April slowed less than anticipated.

Sterling holds steady despite persistent UK inflation concerns

Sterling was steady against the dollar at $1.2722, slightly below the two-month high of $1.2761 reached on the previous day. This rise followed the report showing that British consumer prices increased by 2.3% annually in April. This figure is close to the Bank of England‘s 2% target but is a slower deceleration than the market had expected. The inflation data suggested that price pressures in the UK economy remain persistent.

Chart displaying GBP/USD exchange rate at 1.27289 with a trend of 0.13%, reflecting the pound holding steady following the election announcement and inflation data. The chart features moving averages (MA) and MACD indicators, highlighting stability against the euro at 85.07 pence to the common currency, maintaining levels close to the strongest since February. Image hosted by VT Markets, a forex CFDs brokerage

Picture: Pound remains steady as seen on VT Markets app.

Against the euro, the pound was also stable, trading at 85.07 pence to the common currency, maintaining levels close to the strongest since February.

Market impact expected to be minimal

The announcement of the election, set for July 4, and the start of the campaigns of Sunak and his Labour Party rival Keir Starmer drew significant attention.

Analysts, however, believe the election itself is unlikely to have a substantial immediate impact on the markets. Sunak’s Conservative Party currently trails Labour by around 20 percentage points in opinion polls.

Liz Truss’s brief premiership in 2022 was marked by a controversial program of unfunded tax cuts, which led to a sell-off in British government bonds and negatively impacted the pound.

Also read: APRIL 2024: UK, EU economic data in horizon 

Bank of England’s next moves, rate cuts expected later in the year

Market expectations indicate that the Bank of England is likely to begin cutting interest rates at its September meeting, although an August cut is not out of the question, both after the election.

Prior to the inflation data, there was a possibility that the BoE might consider cuts as early as June or August. The higher-than-expected inflation figure reduces the likelihood of a rate cut in June, as services inflation remains elevated. 

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