Pound rises above $1.30 for the first time since November as UK inflation persists

The Pound Sterling surged by over 0.1% on Tuesday, reaching around $1.30 for the first time since November after the U.S. presidential elections. The pound later dropped by around 0.2% to $1.297. The currency has also climbed by around 3% over the past month, helped by the declining dollar due to economic and political uncertainty in the U.S. 

The current pound price is a significant turnaround from the currency’s performance in January. In January, the pound plunged to its lowest level against the U.S. dollar since November 2023, reaching around $1.22. The price was significantly lower than its plunge in November when the pound dropped to a six-month low of around $1.25. 

The plunge in November was due to worsening business output in the country for the first time in over one year. Retail sales in the country also dropped sharply in October, increasing the contraction of the economy. The strain increased in January as UK borrowing rates increased to the highest levels in 16 years. The 30-year government bonds also surged to the highest level in 27 years. 

The UK economic performance in January led to more worries about tax increases for businesses or decreased government spending to sustain the government’s stance of lower borrowing. Shadow Chancellor Mel Stride expressed concerns about the country’s high debt and low economic growth, which could increase the issues experienced by UK citizens. 

President Trump’s trade wars fuel the pound’s growth

The plunging of the U.S. dollar is a result of Trump’s policies, which have significantly increased uncertainty about the economy’s health and raised questions about the relationship between the U.S. and other countries. U.S. Treasury Secretary Scott Bessent has further increased the uncertainty around Trump’s policies, mentioning that the threat of a recession was not entirely out of the picture. Bessent still insisted that the U.S. economy was healthy despite the current developments. 

President Trump initiated tariffs on Mexican and Canadian imports, adding a non-exempt 25% tariff policy on global steel and aluminium imports beginning on April 2. The president also threatened Canada with a 50% tariff on the same products before retracting the decision. The tariffs on metal imports have raised caution in the Bank of England and the Federal Reserve, with both expected to maintain the current borrowing rates. 

Several industry analysts have confirmed that the current rise in the pound is due to the slowdown in the U.S. economy and the uncertainty caused by Trump’s policies. A Financial Times report cited the Royal London Asset Management rates and cash head Craig Inches who mentioned the pound strength to result from fears of a slowdown in the U.S. economy. The report also cited the MUFG senior currency analyst Lee Hardman who commented that the public was more skeptical about Trump’s policies and their ability to boost the U.S. economy and strengthen the U.S. dollar. 

UK inflation persists while BoE maintains rates

UK: The rate of Consumer Prices Index inflation increased to 3% in January from 2.5% in December and 1.7% in September. This is combined with the highest tax burden since 1948. We are being fleeced. Millions of people simply can’t afford basic living costs. It’s a total mess. pic.twitter.com/SRLfBa6bIj

— James Melville 🚜 (@JamesMelville) February 19, 2025

UK inflation has also been persisting over the past few months, beginning to surge in the last months of last year after a consistent decline since 2022. The inflation rose in January to 3.0% compared to the expectation of 2.8%, with basic foodstuffs, including butter, meat, eggs, and cereals, increasing in price compared to a year ago. The surge followed a significant drop in the CPI value in December to 2.5% from 2.6%. The January spike marked the highest inflation level since March last year. 

The January rise brings UK inflation persistence to the third month in a row, with the surge beginning in November last year. The latest report led to worries about the inflation rates lowering from the sudden surge experienced in January. The UK Treasury Department warned that the road toward lower prices would be bumpy, explaining that the current level was necessary to kickstart economic growth.

A recent Bank of England survey led by IPSOS also revealed higher inflation expectations compared to November. Respondents believed the current inflation rate to be 4.9%, up from 4.8% in November. Respondents also believed that this year’s inflation rate and expected inflation 12 months after would be 3.4% and 3.2%, up from 3% and 2.8% in November, respectively. 

The BoE is also expected to hold interest rates at the current 4.5% level this week as the inflation rate and wage growth remain worrisome. The BoE’s Monetary Policy Committee is reportedly facing a fog of uncertainty due to Trump’s economic policies. The bank’s governor, Andrew Bailey, also stated that the BoE would take a careful and gradual approach toward rate cuts in the future.

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