Figures released on Friday showed the UK economy was much stronger than expected after the surprise Brexit vote, with the headline economic growth rate of 0.6% - revised up by 0.1% from the previous estimate - in the third quarter to September. However, there is cause for concern, looking at the wider picture we notice household disposable income fell 0.6% in the third quarter.
While wages grew by 1.3% in the same period, it is higher taxes and a squeeze on social security benefits that is the cause. With the majority of non-pensioner social security benefits frozen for a minimum of 4-years and the household saving ratio of 5.6% - one of the lowest on record - we are likely to see a continuation of the squeeze on disposable incomes over the coming periods as increasing inflation begins to come into effect due to GBP weakness.
However, possible reasons behind why the economy and thus GBP rates may not yet have felt the full impact of Brexit could be down to the time of the year. During December and January, we see two major boosts to the economy:
Firstly, a recent OnePoll survey estimates the average British household spends £868 on food and presents during the festive period, totalling in excess of £1.2bn.
Secondly, Eventbrite have found that British businesses will spend almost £1bn on staff entertaining over the festive period.
This has the effect of making the economy appear to be in a strong position, while in truth it may be due to consumers spending their personal savings. If you have a GBP selling requirement, it may be advisable to do it sooner rather than later to avoid a possible fall in GBP rates when it becomes clear Brexit has taken a hold of the UK economy.
With Government sources pointing towards a Supreme Court ruling which could go either way in January, if you have a GBP requirement it may be advisable to contact your account manager here at currencies.co.uk to lock in the rate of exchange today now for a small deposit through the use of a forward contract to remove the uncertainty in this volatile period. If the Supreme Court uphold the High Court ruling it would be seen as GBP positive, delaying the triggering of Article 50 and reducing the chances of a ‘hard Brexit’. I believe if this were to happen we could see GBP return to mid-1.19.
The latest poll by the Institute of Directors - a 34,000 strong member organisation of small and medium sized businesses - released on Monday for December reported more than 60% of business leaders were optimistic about their revenue and profitability prospects in the coming year, the highest figure since June. However, 45% of the business leaders also reported the uncertain future trading status with the EU was holding them back from further investment and expansion.
Uncertainty affects the currency in question, and what lies ahead for the UK and more specifically, the economy, could present a new wave of Sterling weakness in the wake of the Governments unclear Brexit plans. Those holding Sterling may still want to benefit from the spike in its favour, by getting in touch with their dedicated currency specialist at Foreign Currency Direct. If you have not traded before, and would like to know more, please feel free to email firstname.lastname@example.org or call 01494 725 353.
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