The British Pound has risen considerably this morning as a UK court ruled the government must hold a vote in Parliament before starting the two-year countdown to Brexit and the Bank of England (BOE) announced that they will not cut interest rates, which are already at a record low level, this year. The UK currency was trading 1.6% and 1.5% higher vs the U.S. Dollar and Euro respectively, recovering some ground from the near 20% slide in 2016.
With the GB Pound climbing amid speculation the high court ruling will delay the terms of BREXIT, Government bonds fell as BOE officials raised their forecasts for GDP growth and inflation for 2017, while keeping interest rates on hold at 0.25%. Economic growth has been revised up to 1.4% from previous forecasts of 0.8%, while inflation is expected to nearly triple to 2.7% next year with the BOE warning that the speed at which UK prices rise may not return to the target below 2% until 2020.
How has these events impacted the UK energy prices and what should you do as a result? The surge in the UK currency this morning has seen UK energy prices (natural gas and electricity) for delivery in the further future (summer-17 onwards) retreat by more than 2% as a strengthening of the GB pound deters continental traders away from the UK energy markets, which in turn reduces demand, while also making imports from Europe, U.S. and the middle East (particularly LNG) cheaper. Our trading desk would advise to hold off any energy purchases as the recent sharp rally in both natural gas (month ahead up by 112%, summer-17 up by 64% and winter-17 up by 59%) and electricity (month ahead up by 150%, summer-17 up by 55% and winter-17 up by 49%) amid slumping GB Pound, surging global coal prices, rising crude oil, higher demand and tight spare capacity is seen as overstretched both fundamentally and technically and a meaningful correction of 10-15% should be imminent. If you have any questions about the energy markets or your supply contracts, please call us and we will be able to help.