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Brexit and British Inflation

The controversy over Brexit continues with former Prime Minister Toney Blair urging people to "rise up" against Brexit - a vote he calls Britainís biggest decision "since the Second World War". He makes it clear that he believes Brexit was a mistake. On top of this, Theresa May could be forced to make concessions on the issue of EU citizenship rights in the wake of a bilateral push on the issue.

The forex markets are not impressed by the recent grandstanding. The pound slumps in response to weak U.K retail data (data many feel to be a symptom of Brexit), hawkish U.S Fed comments, and weakening wage growth. Inflation may worsen the outlook for the pound.

Inflation

Inflation continues to climb; it now sits at around 1.6 percent. Wage growth, however, is a solid 2.6 percent, so it is unrealistic to claim that inflation is hurting consumer purchasing power. 



Employment

The employment rate also remains high, and the U.K economy is healthy in almost all aspects except the continued weakness of the pound relative to other currencies.



Conclusion

The U.K economy is starting to see increasing inflation and lower consumer spending. These factors are keeping the pound suppressed, but concern may be overblown. At 1.6 percent, inflation is not problematic so long as wage growth keeps pace.

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