Haldane Claims BoE Should be Ready to Cut Interest Rates if Necessary, Pound (GBP) Falls
The GBP/EUR exchange rate has plummeted -0.5% today following comments from Mark Carney and Bank of England (BoE) Chief Economist Andy Haldane. While Carney is predicting that interest rates will remain low, with gradual rises, Haldane has said that the Monetary Policy Committee (MPC) should be prepared to cut rates if the state of the economy warrants such a measure.
A weak Pound has opened the way for the Euro to surge, as a steady rate of German growth and optimistic German business condition survey results provide further evidence of a positive economic outlook for the Eurozone following yesterday’s better-than-expected PMI releases.
The GBP/EUR exchange rate is currently trading around 1.4155.
Pound Sterling Falls as City University Academics Predict £40 Billion Deficit by 2020
While Chancellor George Osbourne is expected to announce a series of additional cuts in order to keep the UK on track for a £10 billion budget surplus by 2020, London City academics believe his actions could depress economic growth to the point where he has to borrow more money than forecast.
The academics believe there is likely to be a £50 billion gap in borrowing because the Treasury would make the same mistakes it has made since the Coalition came to power. The result was that the government borrowed £160 billion more than predicted. It is also argued that George Osbourne will be acting directly against the findings of an International Monetary Fund (IMF) study that shows making cuts to public spending during recovery results in low growth, depressed tax receipts and therefore requires countries to borrow more.
The GBP/EUR exchange rate is trending down -0.1% in the region of 1.4261.
Pound Sterling (GBP) is experiencing mixed results today. Last Friday’s poor borrowing figures have cast doubt on the future of UK debt and only overseas weakness has prevented Sterling from drastic losses.
Meanwhile the Euro (EUR) is advancing again after further dovish comments by Mario Draghi, President of the European Central Bank (ECB), caused another slump on Friday.
GBP/EUR Exchange Rate News: Pound Rocked by Worst October Borrowing Figures for Six Years
Last week’s UK public spending figures showed the worst borrowing deficit in Public Finances for six years, with the government overspending by £4 billion. The news has shaken Chancellor George Osbourne’s long term plan and casts doubts on whether or not the UK will be able to control borrowing enough to hit the £10 billion surplus forecast for 2019.
While the Chancellor is still on track to reduce borrowing for this year, the final figure is estimated to be around £10 billion higher than the original target of £69.5 billion announced in the July budget. National debt now stands at £1.5 trillion – more than 80% of annual UK economic output.
According to the Institute of Fiscal Studies, Osbourne must overcome two main challenges in order to meet his target of a budget surplus by 2019: ‘The first is to divide up the shrinking budget for day-to-day spending by departments, while continuing to protect many areas of spending. The second is to remain within his welfare cap while taking on board the recent House of Lords motion that he must reconsider the tax credit cuts he announced in July’.
The GBP/EUR exchange rate is currently trending in the region of 1.4259.
EUR/GBP Exchange Rate Up as PMIs Show Eurozone Economic Growth
The latest round of PMIs have shown that the Eurozone economy has grown by more than expected. Eurozone Manufacturing rose to 52.6, services to 54.6 and the composite advanced to 54.4. German PMIs also printed better-than-expected, although French services and composite data both slowed to 51.3.
Investors will welcome the good news after consecutive Draghi speeches highlighted the issue of Eurozone growth and suggested the need for additional monetary stimulus. While the figures are good news for the Eurozone, Markit Chief Economist Chris Williamson doesn’t believe they will stop policymakers from acting: ‘November’s slightly improved PMI reading will no doubt do little to dissuade policymakers that more needs to be done at their December meeting to ensure stronger and more sustainable growth.’
The EUR/GBP exchange rate is currently trading between 0.6990 and 0.7020.
GBP/EUR Exchange Rate Forecast: No UK Data Until Friday Gives Euro Room to Advance
Positive Euro fortunes could continue this week with plenty more Eurozone data due out. The Institute for Economic Research releases its assessment of Germany’s business climate and expectations tomorrow, which will show whether or not analysts and business owners expect growth to continue. The results of the German GfK Consumer Confidence Survey are due out on Thursday, but these are expected to show a minor drop to 9.2.
The UK has to wait until Friday for any important data, when GBP figures are expected to hold steady. A positive result here could still have little impact if the Euro continues its recovery, buoyed on the back of strong Eurozone growth figures.
The GBP/EUR exchange rate is currently trading narrowly between 1.4237 and 1.4301.