Jonathan Watson
Associate Director
Sterling slide looks unlikely to be shaken
We look at the continuing impact of Brexit, discussing how it is affecting the UK economy. Jonathan Watson then goes on to look at the likelihood of an interest rate hike this year.
This Sterling update discusses the continuing impact of Brexit, recent consumer spending news, and the factors that are affecting exchange rates if you are buying abroad or making a currency transfer. This table shows the market movements for a number of GBP currency pairings in the last week:
| Currency Pair | % Change | Difference on £200,000 |
|---|---|---|
| GBP/EUR | 1.49% | €3,284 EUR |
| GBP/USD | 1.73% | $4,680 USD |
| GBP/NZD | 2.48% | $8,636 NZD |
Consumer downturn up ahead?
The Pound is at its current level for a multitude of reasons including lack of clarity and direction over Brexit, slim chances of an interest rate hike and concerns over the net effects of all of this on the UK economy. One key area propping up the economy has been the consumer, unfazed by Brexit, millions have been racking up debts on cars, clothes and entertaining themselves. However just this weekend Visa has confirmed household expenditure fell by 0.8% in July compared to the previous month.
One particular area driving the UK economy since the vote last June has been new car sales, however further data released over the weekend showed the fourth month in a row of declines for new car sales.
Fears of a sub-prime crisis developing in car finance do little to boost confidence for the UK and with sales trailing off, this last stand for the Pound and the British consumer could be on the way out.
With the consumer having boosted the economy but apparently now beginning to rein in his spending further trouble could be ahead.
The latest NIESR (National Institute Economic and Social Research) is released tomorrow. This is predicted to show figures of 0.3% echoing the more official data from last week but could move the Pound.
Overall I cannot see anything majorly testing the evidence in front of us. That essentially Brexit and the uncertainty it has created will not quickly shift and therefore nor will the status of the Pound. If you are buying a foreign currency with the Pound keeping up to date with the latest trends on the respective currency is crucial as it doesn’t seem the pound will be doing you many favours.
Is there any chance of an interest rate hike now?
The only saving grace is that with sterling likely to remain low, Inflation should now rise further in the coming months and I think this will increase calls for a rate hike. But clients looking to buy a foreign currency with Pounds shouldn’t be too excited. This might not happen for 9 – 12 months and even then the Pound probably won’t rise majorly as all the BoE will be doing is reversing the cut from last year. We have actually been patiently waiting for the Bank of England to hike since 2008! This is when rates were cut to their previous lows and actually the last move since was further downward. I see no change here anytime soon.
Further information this week is the latest Industrial and Manufacturing Production data on Thursday including the Trade Balance figures. If you have a GBP requirement highlighting your position to your account manager is essential to getting the most up to date news and information from the market.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me directly at jmw@currencies.co.uk.
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UK
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UK
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