UK Inflation Touches 40-year High

Inflation in the UK leapt to its highest annual rate since 1982, putting severe pressure on Finance Minister Rishi Sunak to do more to help families facing a cost-of-living crisis.

Consumer price inflation touched 9% in April, recalling the peaks of the early 1990s’ recession that many UK residents remember for unbearably high interest rates as well as waves of mortgage defaults. The Sterling fell after the latest inflation news was announced and lost 0.4% against the US dollar. Sky-high energy bills were the largest contributor of price increases in April, after last month's increase in regulated energy tariffs.

The Bank of England (BoE) recently forecast that inflation would go above 10% later in the year. Analysts are hoping the BoE will respond to inflationary pressures and implement as many as four interest rate increases for the rest of the year.

The results of inflation showed up in the manufacturing sector, which suffered a massive increase in the price of raw materials, up by an annual 18.6%. Factories have raised their prices by 14% over the 12 months to April, the biggest climb in almost 15 years.

What does this mean for me? 

Among all the challenges facing global economies today, inflation is the biggest. Central banks have tried in vain to tame rising inflation and consumer prices for well over a year.

On the one hand, the weakening of the Sterling on the back of these high inflation numbers should alert you, as a FOREX investor, that global currencies are susceptible to losing value in times of grim economic news. On the other hand, expected interest rate hikes could make the British pound attractive again and therefore lead to its appreciation.