“Uncertain” seems to be the best way to describe the current situation not just here in the UK but also worldwide as a whole range of events seem to be knocking both the UK and the world economy off their paths to economic recovery. On Friday sterling gave back many of the week’s gains against the US dollar as UKIP’s victory in the Clacton-on-Sea by-election weighed on the currency. UKIP gained 60% of the vote to secure their first elected MP – this sent sterling tumbling against the US dollar due to heightened uncertainty over the outcome of the May 2015 general election. Performance against the euro proved to be more resilient, as investors remain wary of supporting the single currency.
The outlook for the week ahead will be focused on inflation and labour data for the UK, with a relatively quiet week overall. Tuesday sees the release of the latest consumer inflation figures, which are forecast to show a 1.4% increase from last year. With the rate of inflation steadily falling over recent months, an unexpected increase could boost sterling. Aside from this, the only major data from the UK comes on Wednesday as we see the number of people claiming unemployment benefits over the past month. More importantly, we will see the average earnings index for the previous quarter. With stagnating wage growth often cited as a reason to keep interest rates low, investors will be looking for a pick-up in data results to inform policy makers over rate movements.