Pound Sterling (GBP) Exchange Rate Outlook Improves as Living Conditions Ease for Britons

Above: UK inflation has fallen but the pound exchange rate complex has nevertheless found some support.

The British pound (GBP) has seen relief offered by today's inflation numbers; markets had been fearing the figure would come in below the expected 1.6%; the relief has lead to increased buying.

"The disappointment in the falling CPI is being largely offset by rising wages in the U.K. The combination of falling inflation and rising wages improves the standard of living for Britons," says Omer Esiner at Commonwealth Foreign Exchange, "Tomorrow’s U.K. employment and wage data will be closely watched by market participants.

A look at the latest GBP rates shows:

• Pound euro exchange rate: 1.1885
• Pound dollar exchange rate: 1.3173
• Pound Australian dollar: 1.9524
• Pound Canadian dollar rate: 1.7963
• British Pound New Zealand dollar rate: 2.1284

Note all quotes are reflective of the inter-bank market. Your bank or payment institution is free to levy a rate at their discretion. However, FCA-registered independent providers guarantee to undercut your bank's offer, thus delivering up to 5% more FX. Please learn more here

Predicting a firmer pound dollar exchange rate

According to Tony Wilson, head of strategy at the foreign exchange specialists FEXCO, today's reading should improve the prospects for the GBP.

Indeed, Wilson is forecasting a firmer pound dollar exchange rate going forward:

"Sterling has strengthened against the Dollar and the Euro on the news that UK inflation has fallen to its lowest level since October 2009.

"While the 1.6% CPI reading had been widely forecast, its future implications are harder to read.

"Steadily falling prices and the wide availability of credit are already fuelling a spending boom among British consumers, but the fact that CPI has now been safely below the Bank of England's 2% target for three straight months may lead the Bank to consider normalising its interest rate policy.

"After five years at 0.5%, Britain's rock bottom base rate is being blamed for inflating a dangerously large house price bubble - and has led to calls for rates to be returned to more normal levels.

"Sterling had suffered a torrid few days since sliding from a high of 1.6820 against the Greenback last Thursday. Now the suggestion that an interest rate rise could come this year will move it firmly back into upside territory."

Commenting on inflation figures which showed CPI fell to 1.6 per cent in March, John Allan, National Chairman, Federation of Small Businesses, said:

“This lower inflation rate marks a positive development for our members as the economy continues to grow. Small businesses are keenly aware of the importance of keeping the cost of doing business down. FSB members are also telling us they are beginning to increase staff pay and with reports suggesting wages will outstrip inflation, workers will hopefully begin to feel the difference in their pockets.”