We saw Sterling struggle against all major currencies first thing yesterday morning with the release of both UK unemployment data as well as UK Average Earnings. Although unemployment continued to fall and come out at just 4.7% we also saw a fall in the value of average earnings from the expectation of 2.4% to 2.2%. Combined with lower than expected Retail Sales earlier this month it appears as though the UK economy is starting to see signs of a bit of a slowdown here in the UK.
Wage growth is important to the economic policy as it directly impacts on whether there is scope to change interest rates. It appears from the statistics that individuals are working longer hours but are getting paid less hence the reason for the weakening of Sterling.
The Bank of England are due to release their interest rate decision at 12pm today with the expectation for no change. All 9 members of the Monetary Policy Committee are likely to keep interest rates on hold. With the European Central Bank having announced earlier this month that Quantitative Easing will be tapered from €80bn per month to €60bn this has caused the single currency to strengthen against the Pound.
It will be interesting to see what Bank of England governor Mark Carney has to say for himself when the press conference shortly after the interest rate decision. I would not be surprised to see him use the time to focus of the Brexit effect and the impact of triggering Article 50 at some point this month.
As yet it has not been made clear when Article 50 will be triggered but Brexit secretary David Davis has made it clear that it will happen at ‘the end of the month.’ With the Brexit bill having now been approved it is simply a case of Theresa May picking the right time which at the moment is clearly not just yet.
With the Scottish National Party conference due to take place on Saturday triggering the start of the negotiations would give the upper hand to SNP leader Nicola Sturgeon for her to campaign for another Scottish referendum and looking at what happened previously when this took place back in 2014 this caused the Pound to suffer as a result.
We are now close to the lowest level in 8 weeks to buy Euros with Sterling and a 2 month low to buy US Dollars with the Pound. I think we will see further losses for the Pound in the coming weeks against all major currencies as although the triggering of Article 50 will mean we have taken control of the situation and negotiations can start, the real problem is that we will have opened Pandora’s box.
The majority of the 27 other member states do not want the UK to leave the European Union and in my opinion they will make the negotiations as difficult as possible. Also, the negotiations are likely to drag on for a significant period of time and although the timescale is 2 years I think it may even take a lot longer to get to where the UK needs to be. Therefore, this is reasoning for my prediction for the Pound.
If we turn the focus back to what happened last summer following the Brexit vote this caused Sterling to dramatically fall against all major currencies with drops of over 9% against both the single currency and the US Dollar. With this precedent having happened before could we see similar movement this time round when the Brexit negotiations formally begin?
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