🥁 UK Core Inflation Hits a 28-Year High
What this means for Bitcoin, Binance accused of commingling funds, and more!
BEN Beats
May 25, 2023
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UK Core Inflation Hits a 28-Year High
Oh boy, UK core inflation is soaring. It was just 2% less than two years ago, and now reached 6.8% in April, its highest since 1992.
High core inflation leads to high bond yields and increasing uncertainties.
In other countries, such times of uncertainty have pushed investors towards Bitcoin. For example, in Turkey, inflation has surpassed 100% over the past three years, and BTC/TRY trading volume increased significantly.
What is the difference between core inflation and inflation?
Core inflation is inflation calculated from the Consumer Price Index (CPI), and includes commodities, goods, and services, but excludes things like food and fuel, because those are more volatile. It’s supposed to be more stable and a better benchmark for deciding interest rates.
Increasing interest rates is supposed to help with inflation. With higher government-mandated interest rates, people spend less, demand goes down, and merchants price their goods lower.
This is important because UK’s inflation is actually down from 10.1% to 8.7% in April, while its core inflation is up to 6.8% from 6.2%.
Even though the UK’s inflation is down, it just means that prices will increase more slowly, not that prices will necessarily start going down. The UK’s inflation is still the highest among the G7 advanced nations, showing that it’s very reliant on imported energy and food.
Inflation falls from 10.1% to 8.7% but…
- bad news for Bank of England = core inflation rose from 6.2% to 6.8%.
- bad news for families = food price inflation is stubbornly high at 19.1% and moving centre stage in the cost of living crisis— Torsten Bell (@TorstenBell)
May 24, 2023
How will the UK react?
High core inflation especially leads to high bond yields and increasing uncertainties.
Economists have raised the alarm that the Bank of England’s Monetary Policy Committee might raise interest rates again from 4.5%. The decision will come out on June 22nd. Investors are almost certain that there will be a quarter-percentage point increase.
In other countries, such times of uncertainty have pushed investors towards Bitcoin. For example, in Turkey, inflation surpassed 100% over the past three years, and BTC/TRY trading volume increased significantly.
Turkey has been reducing interest rates in the face of rising inflation, as their government believes that high interest rates cause high inflation, which goes against what most economists believe. The lira crashed from roughly 9 per dollar to 18.5 in six weeks mid-December 2021.
David Belle, founder of Macrodesiac.com and U.K. growth director at TradingView, told CoinDesk that “Lower interest rates amidst high inflation is going to lead to people selling the currency.”
In September 2022, the British pound flash crashed, losing 4.3% of its value against the U.S. dollar in a single day. The Bank of England intervened by buying £65 billion worth of UK bonds, and there was a record-breaking BTC/GBP trading volume of 1,200% in a 24 hour period.
Gabor Gurbacs, strategy advisor at investment giant VanEck, said that BTC will see “increased interest from the UK” very quickly.
The United Kingdom will get orange-pilled very quickly given GBP volatility. Given that the UK is now outside of the EU bureaucratic apparatus, it will get another chance to become a #Bitcoin hub. I think UK leaders will use this opportunity reasonably well.
— Gabor Gurbacs (@gaborgurbacs)
Sep 26, 2022
According to data from James Butterfill, Head of Research at CoinShares, trade volume for the GBP/BTC pair on Bitstamp and Bitfinex exchanges hit a combined $881 million on Sept 26th. For reference, they usually only hit a combined $70 million per day, so it’s an increase of over 1,150%.
#Bitcoin volumes against #GBP were US$881m yesterday (US$70m average), when a FIAT currency is threatened, investors start to favour Bitcoin
— James Butterfill (@jbutterfill)
Sep 27, 2022
What happens next?
The massive increase in BTC/GBP trading volume has gotten reactions from influential figures such as Reacting, Saifedean Ammous, author of the famous book The Bitcoin Standard.
Orgs are stepping up to educate the UK about Bitcoin. The UK’s largest international Bitcoin Conference, held in Edinburgh, Scotland in Oct 2022, saw 800 attendees and was organized by the Bitcoin Collective, in partnership with crypto exchange OKX.
All of this was back in September of 2022. As we just discussed, core inflation has gotten worse since then, and interest rates are about to go up.
At best, the UK could become a Bitcoin hub where people are financially literate enough to know how to best protect their assets while inflation slows down with the increased interest rates. At worst, people will struggle holding onto a devaluing GBP while interest rates are increased and the price of everything around them increase as well.
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