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Inflation and Currency Exchange Rates Today
Back in April 2009, Britain’s public deficit reached an unspeakable high. It was the highest since records began. In December 2009, inflation soared to a record amount. Now inflation has risen above the 2 percent target of the Bank of England and we are expecting to adverse changes to happen to our exchange rates. Today, Bank of England governor expresses his deep concerns about where this will lead.
How Inflation Will Affect Currency Exchange Rates
Today, the recession is over. But the worst is not. Because now the entire country has been left with a bad taste in our mouths – we have a huge public deficit which rises far above the debt of all UN countries put together and is the highest since paper records started. We’ve faced the threat of losing our borrowing status, having been downgraded from ‘stable’ to ‘unstable’, and now we have inflation to deal with. There is no doubt that this will have an adverse effect of exchange rates. Today, we deal the recession aftermath.
Inflation is a vicious cycle which started from increasing interest rates and long-term borrowing. These methods of money-raising led to the direct causes of inflation – increased prices and increased import prices due to devaluation. In turn, percent mark-ups and profits need to match up to increasing prices, therefore higher wages and salaries are demanded. And so the cycle begins. So how will this affect exchange rates today?
The Pound and Exchange Rates
Today our prices have increased so our exports are more expensive. As this persists and we do less trade with other countries, we devalue our currency. But the Liberal Democrat Treasury spokesman, Vince Cable assured the country that this is a ‘temporary spike’ in our economy and soon inflation will drop. According to Vince Cable, it is expected to drop very quickly so it is very unlikely of damage to our future exchange rates. Today in Britain, recovery is still fragile, but there is progress.
Very recently, one of the most accurate currencies, as reported by the Guardian, was the British pound. It gained good ground after putting monetary-stimulus measures on hold and the quantitative easing programme caused the British pound to rise by 0.8%, while the Euro slipped 0.7%.