This comes at a crucial time for the Bank of England (BoE), which must decide on its policy reaction to any signs of increasing inflationary pressures that UK consumers could face.
Although the BoE is broadly tipped to keep interest rates on ice even if inflation rises a little above the target 2%, some economists have been warning that the BoE’s hand may be forced later in the year.
Among them has been PricewaterhouseCoopers Senior Economic Advisor Andrew Sentence, who has forecast;
‘The trend is clearly towards higher inflation, however, and we should expect the rate of price increases to rise above the 2% Bank of England target in the next few months. By the end of this year, inflation is likely to be around 3% and possibly even higher. Rising energy prices and the weakness of the Pound are the main factors behind this expected increase’.
The official beginning of Brexit, likely before the end of March, could trigger a heavy Pound depreciation against the Rand. Widespread Sterling losses would only further increase the national inflation rate.
While it may not come in either of the next two policy meetings, scheduled for March and May, a Bank of England rate hike in response to rising inflation could boost the Pound against the Rand.
The Rand itself has been stabilised against the Pound recently by South African unemployment falling from 27.1% to 26.5% in Q4; this has been a positive move but still only a dent in the alarmingly high levels of joblessness.
Economists in South Africa have also been focused on the recent State of the Nation Address (SONA) given by President Jacob Zuma, which targets growth reaching 1.7%, aims to expand government support for businesses and hopes to raise the quality of national teaching.
The address itself was marred by brawls in Parliament and walkouts by opposition party members; a near-term debate on the SONA by all parties could see further opposition develop to Zuma as opponents are given free rein to voice their opinions.
If it looks like Zuma’s grasp on national power is eroding, a Pound Rand rise may be more difficult, given that such a situation could bolster Rand demand on hopes of a more financially stable leader.
Recent Interbank GPB ZAR Exchange Rates
At the time of writing, the Pound was trading poorly against the Rand at a rate of 16.49, while the Rand was trading highly against Sterling with a rate of 0.06.