British inflation breaks historical record

Sterling rose against the dollar this week, benefiting from a weaker dollar, while the Bank of England's hawkish tone also supported the pound. The level of inflation in the UK has repeatedly set historical records, the job market continues to tighten, and the Bank of England still has a strong expectation of raising interest rates.

Sterling was down 0.21% at $1.2084 as investors remained concerned about the UK's economic outlook. Against the backdrop of rising inflation, it is difficult for the Bank of England to change the pace of interest rate hikes in the short term. Due to high inflation, the Bank of England should continue to raise interest rates in the short term. Given that inflation remains high and the labor market remains tight, no resistance to further policy tightening is expected in the near term. But if the economy slows, the BoE could pause rate hikes in the first quarter of 2023.

British Chancellor of the Exchequer Jeremy Hunt said that the current government's top priority is to control inflation. The Bank of England's interest rate hike is to bring inflation back to the target level. A prudent monetary policy and a stable economy are to reduce mortgage interest rates and increase employment opportunities. and the best way to achieve long-term growth.

A frequent YouGov poll earlier this month found that 56 percent thought Britain was "wrong" in voting to leave the European Union in 2016, while 32 percent said it was the right decision. As evidence mounts of the long-term damage to the UK economy from Brexit, the government is faced with acknowledging the obvious but overlooked reality of the economic hit.

Britain's independent Office for Budget Responsibility (OBR) gave a bleaker outlook, predicting that UK GDP will contract by 1.4% in 2023, even as the Bank of England and government are forced to tighten monetary and fiscal policy to curb inflation and prevent the economy from overheating. In its Economic and Fiscal Outlook last week, the agency said its trade forecasts reflected an assumption that Brexit would result in the UK's trade intensity (the degree to which an economy integrates with the world economy) in the long run compared with the UK's remaining in the EU. 15% lower.

The deterioration from the fourth quarter of 2019 is partly due to the pandemic, but also partly due to Brexit, as increased trade barriers for companies with the EU have hampered economic activity since early 2021. Between the fourth quarter of 2019 and the third quarter of 2022, UK GDP contracted by 0.4%, while the cumulative GDP of the 38 OECD members grew by 3.7%.

New Prime Minister Sunak's government is expected to seek friendlier relations with the EU than his two predecessors, Johnson and Truss. However, both the Conservatives and Labor have ruled out a return to EU-aligned institutions, fearing it would disenfranchise voters in key constituencies who backed Brexit.

GBP/USD daily K-line chart

The long-term momentum continues to fluctuate and rise, the short-term bullish sentiment is good, the market as a whole is in a rising trend, the upper suppression focuses on around 1.23627, the low support focuses on around 1.17384, the MACD indicator is in the high position of the bullish zone and slowly moves upward, and the RSI indicator is in the bullish zone. As shown in the figure :

[Disclaimer] This article only represents the author's own opinion, does not provide any express or implied guarantee for the accuracy, reliability or completeness of the content contained, and does not constitute any investment advice, readers are only for reference, and all risks are borne by themselves and responsibility.