The UK interest rates have been at an incredibly low point for quite some time now. But how long will they stay there, and what effect will any future movement have on the strength or weakness of the British pound?
The rate of 0.5% that has been in place for the past two years means is set to remain as it is for the time being. But how much longer will we be able to report that headline? When will we see an increase in interest rates and what effect would such an increase have on the recovery, such as it is?
We have seen before that when a disappointing bit of news comes out of the UK, sterling takes a bit of a battering as a result. This means that the currency becomes weaker and doesn’t perform as well on the world stage against other major currencies.
But when it comes to the UK interest rates we end up with an interesting situation. If you read some reports about the idea of what could happen with a rise in interest rates you see that things get rather interesting. You see, some people think that a rise in interest rates is exactly what we need, whereas others think we should stay as we are. The recovery is precarious and some think that inflation will scupper it, which is probably right. Things are very cautious at the moment but could this alone damage the exchange rates the pound has against other currencies as well?
It almost seems as if whatever we do, we can expect the pound to struggle in some way. If the interest rates were to rise and something good came out of it, the pound would do well. If they rose and led to problems, the pound would suffer. It’s a strange situation really but thankfully it is not one that the pound alone faces.
We’ve heard that the situation with the Euro is somewhat precarious as well. And even then what actually happens with regard to our currency could depend on the good or bad news coming out of other countries. For example suppose the US dollar happens to have a strong period just when the pound hits its stride (no matter what happens to the interest rates)? If that were to happen, our improvements would not seem as good as they actually were.
Of course some people would say that the state of the British pound doesn’t matter to them, and it won’t matter unless they happen to want to exchange it to go on holiday somewhere else. But a weak pound can affect the country in other ways – they just might not be as easy to see as we think.
All we can do is to keep an eye on those interest rates to see how they might cause the pound to rise or fall in the future. The strength of our currency depends on a variety of different things, so we should keep an eye on them all.