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Pound Under Pressure as Inflation Rises to Highest Rate Since 2013

Adam Norrie
19 May 2017

The Pound had a rough start this week with the latest reports indicating that inflation has reached 2.7%, up from 2.3% in March. This level is mildly ahead of the expected level of 2.5% and a large increase on the government target rate of 2.0%.

We are now experiencing the highest rate of inflation in the UK since September 2013. This, combined with the likelihood of a ‘hard-Brexit’ is likely to hit the Pound further and have a detrimental impact on the UK economy. Already we have seen a contraction in the GDP as households tighten belts and restrict their spending.

Tightening Belts

The Consumer Price Index (CPI) highlights that prices of groceries, clothing and electricity are all on the rise as well, which naturally puts pressure on our finances. To rub salt into the wounds, it has also been reported that wage increases are now lagging behind inflation for the first time since mid-2014, carving the path for what is becoming a bleak economic outlook for Britain in the near future.

Much of this can be attributed to the Brexit vote in June 2016, which many are arguing triggered the Pound’s depreciation, as well as being the major cause for a rewrite in Britain's economic outlook.

Inflation is the result of an increase in the money supply, which causes a decrease in the value of the existing money in circulation. Simply, it is the erosion of the buying power of your money. Inflation is, in my opinion, one of the worst aspects of fiat currency. The fact that government is capable of introducing new money at whim, which has a direct and negative impact on the value of the money you are earning and saving, is a form of modern day slavery.

At a time when our money becomes worth less each day it is important that what we do put away into savings and investments grow our money at a faster rate than it is depreciating.

Inflation Immunity

Fortunately, Bitcoin is different, and allows for freedom from the shackles of inflation.

Bitcoin has been the best performing currency in the world for 5 out of the last 6 years. In 2016 alone, Bitcoin’s value increased by an impressive 129%, and in 2017 we have seen exponential growth reaching as high as 97% since the beginning of the year.

For people wanting to protect their investments against rising inflation, bitcoin is ideal in that one of its unique characteristics is that it is deflationary by design. 

Unlike fiat currency that can be effectively increased indefinitely, the eventual number of bitcoin is strictly finite. 21 million to be exact. And the rate of issuance is algorithmically programmed to halve approximately every 3- 4 years. This immutable supply and predictable rate of issuance ensures that bitcoin does not suffer the same inflationary fate - corrosion of value. In fact, if anything, it provides the opposite, where basic economics tells us that as the supply decreases, so the value (price) will increase.

By owning bitcoin you are hedging against rising inflation, a weakening Pound and a financial bubble with a needle firmly embedded into its side

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