In July, British inflation nudged upwards to 4.4 per cent on the Consumer Prices Index, 0.2 per cent higher than the previous month. This was well above the Bank of England’s inflation target of 2 per cent, but the foreign exchange markets barely registered the increase. This is in part because the threat of economic stagnation means that any action on UK interest rates is unlikely in the short term. However, it is also because the markets have been warned repeatedly that inflation is likely to be at 5 per cent by the end of 2011.
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The pound’s value fluctuates against a diversity of currencies, but many tourists are most concerned with its value relative to the euro or the American dollar. While the economy of the euro zone has been struggling to recover since the banking crisis began, the US economy has also been finding it problematic to gather momentum. Wrangling among the Washington elite has not helped and the consequence is that anaemic growth is the norm on both sides of the Atlantic.
Taking into account this wider context as well as the factors particular to Britain, it can be understood that a small increase in UK inflation made little difference to the currency deals being made on the foreign exchanges. When one seeks to compare exchange rates, the more information one has the better. Doing a little research is inevitably time well spent.
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