July – September 2018 Currency Forecast – Factors to Watch in the UK

Brexit:

Brexit has already had a negative impact on the UK economy, despite the fact that Britain will not be leaving the EU for another eight months. The uncertainty surrounding the government’s plans and what the EU will make of them has led to some significant swings in the value of the pound. British business leaders are understandably worried about the lack of certainty, with Jaguar Land Rover warning that its £80 billion UK investment plan is at risk if the UK leaves the EU single market.
Theresa May recently managed to defeat a Commons rebellion and her position has been bolstered as a result. It will be hoped that the UK and EU reach an agreement sooner rather than later.

The UK economy:

The economy received a boost when UK growth for the first quarter of 2018 was revised up. The Office for National Statistics had estimated that the UK
economy grew by 0.1% in the first three months of the year, but the final reading was 0.2%. In July, ONS issued its first ever monthly GDP reading, which showed that UK GDP increased by 0.3% in May. While this is welcome news, it served to highlight how imbalanced the UK economy currently is. For, while the services sector posted impressive figures, construction and manufacturing both shrank. It will be interesting to see what the next few monthly readings show.

Interest rates:

When the first monthly UK GDP reading was released, it fuelled speculation that the Bank of England will increase interest rates in August. However,
since then wage growth has slipped to its weakest level in six months. That alone was unlikely to dampen expectations of an August rate hike, but when inflation held steady at 2.4% in June, the chances greatly diminished. The pound tumbled to its lowest mark against the dollar since September 2017 and it makes for a fascinating run up to the rate decision announcement

 

Credit: Smart Currency Business July-September Forecast 2018

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