RationalFX: The pound remains under pressure as the UK’s energy crisis and a global market sell-off continue.
Sterling is proving to be very vulnerable to a surge in gas prices as not only does it threaten to cut off UK consumers’ budget but also hampers the industrial output. This is because the UK relies heavily on gas for electrical output, while a government cap on energy prices distorts the market and leaves many small utility providers unable to operate.
Fears for an already under pressure supply chain have risen in response, leaving severe headwinds to the economy just days ahead of a Bank of England (BoE) meeting.
For investors there could be difficulty in interpreting what a surge in gas prices means. On one hand it could imply higher long term inflation, which could force the BoE to initiate a rate hike earlier than expected. On the other hand a surge in gas prices could hinder consumer spending and industrial output, which would make the BoE rethink a rate hike.
Source : ETFWorld.co.uk