Tuesday, November 21st sees the release of the UK’s Inflation Report along with the Parliamentary hearings where the House of Commons will hear the findings of the Treasury Committee. Appointed by the House of Commons, the Treasury Committee serves as a watchdog for the Bank of England, the FCA (Financial Conduct Authority), the PRA (Prudential Regulation Authority), HM Treasury and HM Revenue and Customs.
These parliamentary hearings are conducted on a quarterly basis and look into the economic and inflationary projections used by the UK’s Monetary Policy Committee to take interest rate decisions.
The inflation rate measures the depreciation in the purchasing power of a fiat currency, in this case, the GBP. Fiat currencies are essentially any currency issued by a country’s Government as a legal tender.
Inflation is a measure of rising prices for essential goods such as grocery items and services over a certain period of time and subsequently since there will be an increase, the purchase power / value of a single currency unit will be reduced.
Taking an example of an annual inflation rate of 5%, then the same quantity of goods would require 1.05 units of currency to purchase, as opposed to 1.0 units of currency in the previous year.
UK inflation for 2017 has jumped to a 4-year high of 2.9 percent which while low when compared to some of the EU countries, is almost a whole percentage point over the 2 percent target set by the BoE (Bank of England).
The failure to meet the 2 percent target is making a further case for an interest hike to curb the inflation rate climb.
The UK has more pressing issues to look into, problems that may well have a bearing on the country’s inflation policy and strategies. Namely, Brexit.
Seeking trade deal assurances from Brussels, UK Prime Minister Theresa May may (pardon the pun) be forced to up her Brexit divorce bill. This puts her under increased pressure from Brexit supporters in her cabinet, as the PM has yet to spell out precisely what concessions from Brussels the higher divorce bill (around £40bn) will bring.
PM May is desperate to break the deadlock in the Brexit negotiations and looks ready to offer more concessions in an effort to agree a trade deal with the EU after the UK leaves the union. Some of her cabinet members however want assurances of a trade deal before agreeing to a divorce bill as generous as this.
Deadline for the UK’s offer is December 14th.
Brexit may well still be some way off but the repercussions are already eating into financial figures for the UK and the GBP, making the parliamentary hearings tomorrow a must-see.
This article is for educational and informative purposes only and should not be considered as investment or trading advice.