The Bank of England raised growth forecasts for the UK in 2017, but concerns for real wage growth and consumer spending are dampening the Pound's sentiment. The below table provides exchange rate movements for the last 30 days for a number of currency pairs:
|Currency Pair||% Change||Difference on £200,000|
Last week we saw the Bank of England lowering their growth forecast for 2017 from 2% to 1.9%. This is down to a few contributing factors but partly down to the fact that this year inflation is on the rise and real wages are on the fall. It is thought that the UK is set for a challenging few months for UK households. In my opinion it is what happens regarding Brexit negotiations which may affect long term growth and wage forecasts, and whether or not we enter into “hard” Brexit negotiations or if Prime Minster May would prefer to move things along in a smooth fashion via a transitional phase.
The BOE quarterly inflation report raised forecasts for inflation this year to 2.8% from its February forecast of 2.4%. The target for inflation is at 2%.
This is bad because the price of goods and services are rising at a higher pace than people’s wages are, eventually it will become hard for people to afford to purchase goods and services at the same pace.
We saw Sterling lose further value on Friday afternoon with GBP/EUR exchange rates dropping as low as 1.1787 from a day high of 1.1864, a fall in value of 0.5%.
This week we have inflation data due out on Tuesday morning at 9.30am and this will be closely viewed by investors after the inflation warning we had last week. Expect volatility for the Pound on Tuesday morning. In my opinion, we may see Sterling/Euro rates drop by up to 1 cent. For those that have an imminent requirement it may be wise to act sooner rather than later.
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