Bennie Kincaid 
On Tuesday, the British pound fell, which put an end to a rally in the currency that had been happening for a week.
This occurred due to disappointing economic data and a reminder from the chief economist of the Bank of England (BoE) that even as domestic energy prices fall, inflation could still prove to be persistent.
The data
On Tuesday, a series of surveys showed that there was a rise in consumer spending in Britain in December, which seemed to defy the cost-of-living crisis, but inflation lagged.
According to the British Retail Consortium, there was a 6.9% increase in spending in store chains in December on an annual basis.
Meanwhile, the month of November had seen consumer price inflation reached 10.7%. Currency analysts said that 1.4 million households in the UK were set to renew their fixed-rate loans this year.
According to government mortgage data, about 800,000 of these homes have a rate of 2% or below, which means their monthly interest payments will double.
In addition, data from BoE shows that the next 1 to 2 years will see the renewal of 25.6% of fixed mortgages in the UK, which means that the issue could have a serious impact on growth in the coming years.
Currency impact
The pound fell 0.2% against the euro and the US dollar both, as it was trading at 88.30 pence against the former and $1.216 against the latter.
In late September, the sterling had dropped to a record low of $1.0327 but had made a 20% recovery since then.
However, it is still 10% lower than where it was in the same month in the previous year and the currency’s strength is more due to a decline in the US dollar than its own performance.
Interest rates
Interest-rate derivatives had shown a month earlier that June would see US interest rates hit their peat at 4.80% and come down by the end of the year to 4.6%.
But, now markets show that rates are expected to climb to 4.9% halfway through the year, before dropping to 4.4% by the end.
As far as the interest-rate curve for the UK is concerned, it shows that interest rates will rise till August to 4.5% and the end of the year would see them come down to 4.36%.
This shows that ‘higher for longer’ may be more applicable in the UK than in the US. This was reinforced by Huw Pill, the chief economist of the Bank of England (BoE) on Monday.
He said that a tight labor market could result in persistent inflation, even if natural gas prices continue to fall in the same way, which means higher interest rates would be required for combating the inflation.
The third quarter of 2022 saw the British economy rank last in the list of the Group of Seven richest countries.
A survey on Monday showed that due to the recent political turmoil in the UK and rising energy costs, it has become less attractive and competitive to foreign investors.
