BoE Policy Report Suggests ‘Brexit’ Fears Hitting UK Economy
According to the latest Monetary Policy Report from the Bank of England (BoE), uncertainty regarding the EU referendum is dragging on UK economic growth. The BoE attributes this to businesses putting off decisions on commercial property transactions and capital expenditure until after the ‘Brexit’ vote has been taken.
The latest BoE policy meeting saw no change to interest rates for the 85th month in a row. The vote remained 9-0 in favour of retaining the current interest rate. Investors were perhaps disappointment that one-time hawk Ian McCafferty hadn’t been inspired to dissent again after the latest positive inflation figures.
GBP/EUR Remains Strong although Trade Data Softens Gains
Pound Sterling has defied the weakening effect of today’s negative data, remaining in positive territory verses the Euro and the majority of the major currencies. The Pound’s overall weakness continues to make it an attractive prospect, although gains verses the common currency have retreated to 0.1%.
Pound (GBP) Strength Short-Lived as Data Disappoints
The Pound’s recovery has been cut short following the release of February’s production and trade ecostats for the UK. Manufacturing production contracted -1.1% on the month and 1.8% on the year, undercutting forecasts of -0.2% and -0.7% respectively. Industrial production declined -0.3% on the month and -0.5% on the year, defying forecasts of no growth and a 0.1% rise respectively.
In further bad news, while the Total Trade Balance narrowed by -£400 million, the Goods Trade deficit widened to nearly -£12 billion and non-EU trade saw a shortfall of -£3.3 billion after January’s -£2.2 billion.
Attitude towards the Pound (GBP) may not be particularly favourable at the present, but the clouds hanging over the Eurozone have weakened the Euro (EUR) today. Although the approaching UK production data is unlikely print favourably, ‘Brexit’ fears and the threat of more monetary stimulus is weighing on the common currency.
Pound (GBP) Recovers Ahead of Production Stats
Yesterday’s barrage of detrimental developments significantly weakened the Pound. As well as the continuing steel crisis and pressure on David Cameron to answer questions regarding the ‘Panama Papers’, the news that the government intends to use taxpayers’ money to fund a pro-EU leaflet campaign soured Pound sentiment.
With the GBP/EUR exchange rate languishing around 22-month lows, the Pound has become an attractive prospect again today. However, approaching industrial and manufacturing production data could detract from the Pound’s current strength, considering the fate of the UK steel industry and 40,000 jobs currently hang in the balance.
The Pound Sterling to Euro (GBP/EUR) exchange rate is trending in the region of 1.2411.
Positive Data Outweighed by Uncertainty; UK Referendum Uncertainty Weighs on (EUR)
Germany may have enjoyed a strong month of trading in February, but the potential damaging effect of the UK’s membership referendum has undermined the positive impact of the data today. The German Current Account increased by almost €6 billion on a non-seasonally-adjusted basis, while the Trade Balance increased €1.1 billion, rather than slipping -€0.2 billion as forecast. Export growth outpaced imports by 0.9%, rising 1.3% on the month.
Until recently, traders and economists had considered the potential of a ‘Brexit’ to be an entirely British problem. Yet concerns have arisen of late that a split from the European Union could have a significant effect on the Eurozone. The worries are partly driven by the realisation that, while a ‘Brexit’ has been priced in to the Pound exchange rates, the Euro remains unaffected and could weaken as a result of a ‘Leave’ vote.
This has further sapped sentiment toward the common currency, which is already weakened by the potential for more stimulus measures from the European Central Bank (ECB). The positive impact of strong German data has been weakened recently by data showing just how strong the negative influence is from weakness in other Eurozone economies, such as France and Italy. It seems traders are beginning to realise that German strength alone isn’t enough to drive solid growth in the Eurozone.
The Euro to Pound Sterling (EUR/GBP) exchange rate is currently trading between 0.8046 and 0.8093.
Pound to Euro (GBP/EUR) Exchange Rate Forecast: NIESR GDP Estimate in Focus
Industrial and manufacturing production data for the UK, along with trade balance figures, has the potential to derail the current Sterling advance. Later, the National Institute for Economic and Social Research (NIESR) will release their GDP estimate for the three months to March. Their last prediction was for growth of just 0.3%.
The day’s impactful Eurozone data has already been released, with only Greek industrial production and inflation data left to be published.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending between 1.2347 and 1.2426.