U.K. Price Inflation Reaches New High
Ironically, this increse in domestic price inflation in Britain (i.e. the erosion of the pound's domestic purchasing power) could at least in the short term increase its external purchasing power. The reason is that foreign exchange rates today are in the short term mainly determined by movements in nominal interest rates. And as inflation is now far above the Bank of England's targets, this makes further interest rate increases increasingly likely. And indeed, so was the case today as the pound surged against both the euro and the dollar.
Incidentally, Swedish price inflation also accelerated, although it is still below the Riksbank's 2% target. But as excessive Swedish money supply growth causes other imbalances, more interest rate hikes will be needed in Sweden too.