Sterling suffered last week following Dovish comments from Mark Carney when he failed to confirm a further interest rate hike at the next BoE meeting. The Pound could well fall in value if there is no interest rate hike at the next opportunity.
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As the Brexit negotiations continue there is a one issue surfacing that appears to be a major sticking point, and personally I think how the issue unfolds will determine the Pound's value as the year goes on.
A term our readers are likely to hear about over the next week or so if they haven’t already is Customs Union. It’s when a group of countries agree to apply the same taxes on imports/goods from outside the union. This allows goods to move tariff-free between the countries involved and it also means that when goods have cleared customs in one of the union member countries, these goods can then be shipped to others without further tariffs being imposed.
The current UK Prime Minister, Theresa May has rebounded from her low point last year when she lost the snap election she called. Since then May has agreed the Brexit Bill at a reduced price than first anticipated, and her chief Brexit negotiators have since agreed the terms of the transitional deal involving the UK and EU as the UK exits the European Union. Sterling has climbed owing to these breakthroughs, but I think it could come under pressure if this issue surrounding the Customs Union continues, especially as it involves the yet to be agreed upon position of the Northern Irish border.
Last Wednesday the government suffered defeat on the EU Withdrawal Bill. There are members in the House of Lords that wish for the UK to remain in the EU’s Customs Union, with some of these MP’s being in Theresa May’s Conservative Party.
As a result the matter will be debated again by MP’s this Thursday, and although the result of any further votes aren’t legally binding I think the talks will carry enough weight to move Sterling’s value. Especially after last Wednesdays vote and a number of key Downing Street sources since suggesting that the UK ‘will not be staying in the customs union or joining any customs unions’.
A number of Brexiteers over the weekend such as Sajid Javid and Michael Gove have threatened a revolt if May makes a U-turn on her promise to leave the EU’s Customs Union post-Brexit.
With the talks being this Thursday, readers have plenty of time to get in touch and plan around the customs union debate, so do make your broker aware if you’re planning a transfer involving the Pound.
A well-known forecasting body, the EY Item Club have recently predicted that despite a sluggish economy, the Bank of England is still likely to hike interest rates twice this year.
They believe that improving jobs markets figures along with earnings growth picking up is likely to prompt the BoE to make these bullish price hikes, and they even went a step further and predicted another two interest rate hikes next year.
Sterling softened in the middle of last week when BoE governor failed to confirm next months anticipated rate hike, and if there is one next month or at the BoE’s next opportunity the base rate will hit 0.75%, the highest it’s been since the UK exited the recession of almost 10-years ago. I would expect to see the Pound drop should there be no rate hike on the 10th of May.
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