Pound weakens as inflation concerns grow in UK
The British pound edged lower against the US dollar on Thursday, as investors moved towards safe-haven assets amid concerns over a fragile ceasefire in the Middle East.
Sterling slipped slightly to $1.349, marking a 0.17% decline for the week.
The move reflects broader risk aversion in global markets, where the US currency attracted inflows as geopolitical uncertainty persisted.
Despite weakening against the dollar, the pound strengthened against the euro.
The single currency fell 0.14% to 86.59 pence, highlighting mixed currency performance on the day.
UK firms report record surge in costs
Fresh economic data pointed to mounting pressure on UK businesses, with companies reporting a record increase in costs in April.
A survey compiled by S&P Global showed that its gauge of input prices in the Flash UK Composite Purchasing Managers’ Index recorded the biggest monthly rise since records began 28 years ago.
The index also reached its highest level since the period of double-digit inflation seen in late 2022.
The data underscores growing concerns about inflationary pressures, largely driven by rising energy costs and broader economic disruptions linked to the Iran war.
At the same time, overall business activity showed resilience.
The survey indicated stronger-than-expected growth, exceeding forecasts from economists polled by Reuters.
Manufacturing confidence hits pandemic-era lows
A separate survey from the Confederation of British Industry revealed a sharp deterioration in manufacturing sentiment.
Domestic manufacturers reported their most pessimistic outlook since the start of the COVID-19 pandemic.
The survey’s gauge of expected prices surged to +32 in April from +12 in March.
This marked the largest month-on-month increase since records for the series began in 1975.
The findings highlight the scale of cost pressures facing producers, with businesses anticipating further increases in prices across the supply chain.
Economists warn of broader inflation risks
Economists cautioned that rising energy costs could have wider implications for consumers.
"To be sure, the outlook remains murky. While we remain sanguine about the prospect of second-round effects, indirect effects remain worrying. Higher energy prices aren’t the only thing consumers will have to worry about. Food prices are likely to rise. Higher shipping costs could also push up core goods prices," Deutsche Bank UK economist Sanjay Raja said, as reported by Reuters.
Raja added that these developments are unlikely to immediately influence monetary policy decisions, noting that the situation may not push the Bank of England into taking action on interest rates in the near term.
Rate hike expectations and fiscal update
Money markets adjusted their expectations for UK monetary policy.
Traders now see a 75% chance of a rate hike by the Bank of England by June, up from a 50/50 probability earlier in the week.
Meanwhile, fiscal data offered a mixed picture.
Britain’s budget deficit for the last financial year narrowed to a six-year low as a share of economic output.
However, borrowing for March exceeded forecasts, according to the Office for National Statistics.
The combination of rising costs, fragile confidence, and shifting rate expectations suggests a complex outlook for the UK economy in the coming months.
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