Sterling climbed against the dollar on Monday after the EU and UK announced that they will “go the extra mile” and continue with Brexit negotiations. 

After last week, when the pound fell due to concerns over a no-deal Brexit, this week the pound rose reversing some of its losses. The Prime Minister Boris Johnson and European Commission president Ursula von der Leyen agreed during a “constructive” call on Sunday to “go the extra mile” in order to secure a trade deal for the UK. With no deadline for negotiations, British officials have said that negotiations could continue until Christmas. 

What do analysts say?

Whatever happens to the pound is going to have an impact on Thursday’s Bank of England meeting which is expected to remain on hold. Analysts believe that if markets are worried and the pound falls on the prospect of a no deal, then the BoE might increase its QE purchases within a short period of time. Nonetheless, pound volatility as we near the end of 2020 is to be expected. 

Goldman Sachs has predicted that the pound will rise if there is progress towards a deal or a no-deal Brexit is avoided. Barclays analysts explained that there will be risks to the pound until an agreement is reached. As the Financial Times reported, some analysts have changed their mind, quoting Gregory Perdon, co-chief investment officer at Arbuthnot Latham, who had “second thoughts” about the pound rising, but he reiterated his hopes for a deal as  “both parties are probably better off economically with a deal.” “Let’s hope rationality wins in this instance,” he added. 

Others more pessimistic, have warned that the pound’s gains might be short-lived, as both the UK and EU have failed to reach a deal repeatedly in the past.

Talking to Reuters, Junichi Ishikawa, senior foreign exchange strategist at IG Securities said: “This is a temporary move higher in the pound, but it is still not clear that a no-deal scenario can be avoided.”

Whether there is a deal or no deal, some investors feel that the pound could still move sharply.

What’s next?

The UK left the European Union on 31 January 2020, but the ongoing negotiations between the UK and EU officials are focussing on securing and negotiating a deal about the rules that will determine and define the kind of relationship the two parties will have post-Brexit. Michel Barnier has commented that Boris Johnson has made a mistake for hoping to negotiate an agreement within only 11 months.

The two sides have until 31 December 2020 to agree a trade deal and, if there is a deal, border checks and taxes will be introduced. The transition period ends on 31 December, and tariffs and quotas will be introduced in the event of a no deal.

A joint UK-EU statement stated that “despite the fact that deadlines have been missed over and over we think it is responsible at this point to go the extra mile."

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Sterling rose after renewed hopes that a Brexit deal is still possible, as the UK Prime Minister Boris Johnson is heading to Brussels for a meeting with the President of the European Commission, Ursula von der Leyen. Heightened volatility is expected as the meeting could take place any time this week or over the weekend, with any rumours possibly to move the currency.

On Monday, the GBP suffered losses after news that the negotiations reached a stalemate, and the PM stated that he was willing to walk away. But, later, on Monday, as it was announced that Johnson would be travelling to Brussels for a face-to-face meeting with von der Leyen, the pound regained some of its losses. News about the meeting is not yet clear and markets expect the two to either meet on Wednesday or possibly Friday. On Thursday, a meeting of European Council EU leaders will also take place, and many predict that the meeting with von der Leyen could even take place in the weekend, to allow EU leaders to approve of a new mandate for the EU Commission President before the meeting.

With confidence dwindling and the possibility of a deal becoming more and more distant, markets will remain sensitive to any Brexit updates. While everyone was expecting Johnson and von der Leyen to discuss over the phone, the announcement of a physical meeting caught markets by surprise. At the current moment everyone hopes that a breakthrough could be reached by an intensification of negotiations at a more personal and political level.

What to expect for Sterling in 2021?

A lot depends on a positive Brexit outcome. The currency is also correlated with global business and economy, so any general positive upswings will also boost the pound. According to economists at Oxford Economics, global economy will expand and the UK will benefit from the trend, especially after being so badly impacted by the pandemic.

However, if both sides fail to reach an agreement, the Pound could fall below parity, as many believe there is much more downside risk than upside. There is a real risk to the outlook of the UK economy and the pound if a no deal outcome ensues, but, at the same time, there are multiple scenarios possible: a deal or no deal, as well as a so-called cooperative no deal and an uncooperative no deal. An uncooperative no-deal Brexit will be more disruptive than a cooperative no-deal Brexit, in which the EU and the UK will be able to cooperate on a number of pressing emergency issues.

The UK government announced on Monday 7th Dec. that they will remove those elements that the EU openly disagrees with in the possibility of a trade deal, including the law-breaking clauses of the Brexit Bill. However, the clauses might return if a trade deal is not agreed, which will point towards a hard, uncooperative no deal Brexit. In this scenario, the pound will fall to the lower end.

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The possibility of striking a Brexit deal before the weekend has helped to stabilise the pound as it recovered some ground, on Thursday. However, tensions are building ahead of the weekend as talks continue. This means that any Brexit-related headlines will create pound volatility and move the market considerably.

The clock is ticking

While markets are hopeful that a deal will be reached, the fact that the clock is now ticking with little space for manoeuvres means that the pound will remain sensitive. The Telegraph reported that Barnier told EU ambassadors that the UK has become more flexible and lowered its demands in regard to UK waters post-Brexit, demonstrating that the two sides are closer to an agreement. Fisheries and governance remain unresolved, with the latter to be negotiated once all other agreements are settled. Talks could now focus on the percentages involved in fisheries, but France might prove to be uncompromising on its fishing demands. According to The Telegraph, "Fishing nations such as France, Denmark, the Netherlands, Belgium and Spain fear Mr Barnier may cave too easily to British demands as talks enter their endgame. Paris insists the UK red line of annual fishing negotiations is unacceptable.” France has already clarified that it will veto any deal that goes against their interests.

A report in The Times said that "France and other hard-line countries are pushing for no deal in Brexit talks to soften up Britain before a reset in negotiations next year, unless the government makes significant concessions in the coming days," and unless the UK "backs down over the next 48 hours", a period of 'no deal' will "bring a chastened Britain back to the table next year".

The BBC's Europe Editor Katya Adler said that Brussels believe a deal will be possible in the event that the UK makes significant steps to meet the demands regarding fisheries, competition rules and governance.

Talks continue in London

Negotiations are at the final stages, but it appears that any last hurdles will require, maybe not divine intervention, but at least some help from leaders from the UK, EU Commission and France. Both Wednesday and Thursday, saw negotiators working well into the night for the final push.

On Friday, The Telegraph reported that talks will find Boris Johnson and Emmanuel Macron coming head to head this weekend, with France interested in securing access to fish in British waters.

According to certain sources, Macron's officials have been "lobbying hard" among different member states to agree to added demands on fishing, state subsidies and non-regression clauses, and these will be discussed by both the PM and the French president over the weekend.

EU member states could also veto any deal as they continue to have concerns about state aid mechanisms and how to enforce agreed environmental and labour standards. France and Denmark are reluctant to lose their fishing shares in UK waters.

Indeed, there is not much time left now, as negotiations continue and the upcoming EU leaders’ meeting on 10 and 11 December 10-11 means that a final deal needs to be ready to be agreed. Sterling will make significant gains if a deal is announced in the coming weeks and it could potentially continue to rise.

 

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Sterling extended earlier gains after a report that the UK and the European Union could agree on a trade and security deal some time next week. Optimism regarding striking an agreement has given the pound fresh impetus, despite that time is running out.

Economists believe that Sterling could strengthen more by mid-2021 if a free trade agreement is reached, as officials are expecting news of some form of progress as early as Monday. British and European parliaments will still need to confirm the terms of the agreement before the transition period ends on 31 December. At the moment, investors remain hopeful, but the possibility of the talks stalling as major differences cannot be bridged is strong, and in such a scenario the pound would likely fall.

Newspaper reports suggest a trade deal is possible

During the week, various newspaper reports have suggested that a trade deal is "just days away" with the Telegraph saying that Ireland believes there are "landing zones" for an agreement and that France has accepted the restrictions to its fishing rights in UK waters after the transition period ends. The newspaper also reported that "the trade agreement could be announced as early as Monday, sources in Brussels suggested – but only if both sides made compromises on issues such as fishing and subsidy law." On Tuesday, the Sun newspaper said a deal could be expected next Tuesday, as the UK Chief Negotiator David Frost said to the Prime Minister Boris Johnson to prepare for a trade deal on Tuesday, news that have helped lift the pound.

Despite positive but unofficial reports in British newspapers, both the EU and UK have not offered a definite answer about the status of the negotiations which means the possibility of a no deal is still a valid outcome with some analysts remaining very cautious. At the same time, the markets seem to have made peace with a possible no-deal scenario, so any news of a deal, no matter what that deal is, will lift the pound. However, a possible deal will only mean temporary and limited gains for the pound according to some analysts, while for others, a considerable rise should be expected.

Brexiteers feel stuck as no deal impossible

The UK is now trapped and will be unable to benefit from Brexit, said former Brexit Party MEP Ben Habib. Habib, who attacked the PM saying that a no deal Brexit was not possible, said in an interview to Express.co.uk, that "We are already stuck, to some extent, in the gravitational pull of the European Union.” For hard Brexiteer Habib, a no deal Brexit would allow the UK to completely cut its ties to the European Union, but, unfortunately, this is not possible anymore. As he said, "We have a deal of some description from which we simply cannot escape."

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Pound volatility is expected to be high today and on Monday as the markets await Prime Minister Boris Johnson’s decision on whether the UK stays or leaves the Brexit negotiating table.

In the meantime, England is dealing with the rise of new Covid-19 cases and restrictions which will come into force under the government’s new three-tier system with London facing tighter restrictions from midnight on Friday.

Under this generalised gloomy climate, investors are waiting to hear whether the UK will continue with the Brexit talks. Last month, Johnson had set a deadline for a possible deal for the 15th October, and said that if nothing had been agreed, both sides should “accept that and move on.”

At a Brussels summit on Thursday, the EU proposed “two to three weeks” of negotiations. Investors are now closely watching to see whether the PM will try and resume the negotiations or stick to his threats and walk away.

Brexit pessimism pushed the pound lower against the US dollar, while it remained flat against the euro. At the same time, the prospect of tighter lockdown restrictions could further hurt the pound and threaten economic recovery. Jasper Lawler, head of research at LCG, said that more lockdown measures could push the UK and European economies into a deep recession: “The British government is under pressure to follow scientific advice for a 2-week circuit breaker national lockdown but has so far resisted, but has raised the capital to the Level 2 tier of restrictions. That means two different families can no longer mix indoors- be that in their home or in a pub or restaurant. There is still no sign of the joint European recovery fund so in the meantime economies stand to take the hit – risking a double dip recession – from the new restrictions.”

Angela Merkel urges Boris Johnson to keep negotiating over Brexit

The German chancellor has urged Boris Johnson to continue and not to walk out of the trade and security negotiations. In her comments that were designed to calm the atmosphere, Merkel said that both sides needed to find common ground: “In some places things have moved well, in other places there is still a lot of work to be done. We have asked the United Kingdom to remain open to compromise, so that an agreement can be reached. This of course means that we, too, will need to make compromises.” Her comments also come after Thursday’s summit where French president, Emmanuel Macron, demanded that the UK accept the bloc’s conditions or face a no-deal exit.

The EU had proposed a further “two to three weeks” of negotiations as the EU’s chief negotiator, Michel Barnier is scheduled to be in London on Monday to continue negotiations. Like Merkel, Barnier also said that the EU wants to give every chance to the negotiations so they are successful: “We’re available, we shall remain available until the last possible day.”

The UK’s chief negotiator, David Frost, expressed his disappointment after Thursday’s summit and tweeted: “Disappointed by the conclusions on UK/EU negotiations. Surprised EU is no longer committed to working ‘intensively’ to reach a future partnership as agreed with [the European commission president, Ursula von der Leyen] on 3 October. Also surprised by suggestion that to get an agreement all future moves must come from UK. It’s an unusual approach to conducting a negotiation.”

The foreign secretary, Dominic Raab, said that a deal was still possible: “We’ve been told that it must be the UK that makes all of the compromises in the days ahead, that can’t be right in a negotiation, so we’re surprised by that, but the prime minister will be saying more on this later today. Having said that, we are close [to a deal]. With goodwill on both sides we can get there.”

While challenges remain when it comes to the Brexit negotiations with the level playing field, fisheries, and governance, still unresolved, many are positive that there could be an agreement if significant work is done.

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The British Pound pushed higher after investor sentiment improved due to the positive news that a deal between EU leaders have been reached. The euro also rose higher. The deal includes €1.8tn in spending, with a €750bn rescue fund to deal with the coronavirus pandemic. €390bn out of the €750bn will be made in grants.

Brexit trade negotiations a key driver for the pound

However, Sterling continues to remain under pressure as Brexit developments can thwart sentiment, while any updates from the Bank of England in relation to negative interest rates can also create further concerns.

Brexit negotiations will take place from Tuesday to Thursday and will cover such issues as trade in goods, fisheries, energy, transport and participation in certain EU programmes. The round will end with a plenary session on Thursday. The Brexit chief negotiator Michel Barnier will hold a press conference and investors will be watching to see any signs of progress regarding the latest round of EU-UK trade negotiations which will significantly boost Sterling.

Brexit trade deal and Tory rebellion

Boris Johnson faces a rebellion from Tories who want to pass an amendment to the Trade Bill that will allow the House of Commons and House of Lords to vote for a trade deal agreed between the UK and any other country.

After Brexit, the UK will need to renegotiate trade deals, something that has been celebrated by Brexiteers and criticised by Remainers. For many, such trade deals with countries like the US will sacrifice certain standards that were followed while the UK was under European legislation. After leaving the European Union at the end of this year, Britain will need to be extremely cautious when striking new deals that will be beneficial to its people rather than meeting the demands of political agendas. The government’s reluctance to allow its lawmakers and the people’s representatives to have a say in the negotiations, goes against its own promise of taking back control from Europe and giving it back to the UK people. Additionally, it denies any scrutiny and seeks to pass deals without a dialogue, enforcing laws that could have repercussions on the social and political lives of its citizens for years to come.

Post-Brexit trade talks on a standstill

EU officers have complained that trade talks have been “going round in circles”, and Downing Street said that “significant differences remain on a number of important issues.” This is what is also expected to be reiterated on Thursday when Barnier appears at the press conference, as both sides are anticipating a stalemate.

Another round of talks will begin the week of August 17, but Germany said that it won’t begin to focus on the negotiations until September.

Boris Johnson does not want talks to “drag on into the autumn”, but he will need to make some concessions to see any movement forward. “We’re waiting for the UK to move,” an EU official has said according to the Financial Times. Johnson has talked of trading with the EU like Australia, but he would need to secure a trade deal that will eventually confirm his competency as a Prime Minister and avoid a disorderly Brexit that could lead to calls for Scottish Independence.

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The pound has regained its momentum since yesterday, after the positive news of new US Federal Reserve stimulus and the latest post-Brexit trade talks between the EU and the UK.

Sterling rose after Prime Minister Boris Johnson said yesterday that there is a "very good chance" a trade deal will be made with the EU. Both Johnson and the EU Commission President Ursula von Der Leyen agreed that there will not be an extension to the Brexit transition period, which will end on 31 December 2020. The pressure is now on both sides to agree on a post-Brexit trade deal, so the UK does not leave the bloc without a deal. If the UK leaves the bloc without a deal, then Britain will revert to World Trade Organisation terms, which will mean that the UK would have to pay high tariffs and quotas at a time when the country’s economy is dealing with the Covid-19 pandemic.

Fresh Momentum injected into the negotiations

According to Reuters, the hour-long video call on Monday between Johnson and the EU Commission’s von Der Leyen, “has injected fresh momentum” into the negotiations, as “people on both sides with knowledge of the conversation,” attested. The “EU inferred from Johnson’s contributions that he is willing to soften his position and European officials told him they are ready to do the same.” After the call, Johnson said: “I don’t think we are actually that far apart -- what we need to see now is a bit of oomph in the negotiations. The faster we can do this the better: we see no reason why you shouldn’t get that done in July.”

Obstacles Remain

Johnson’s latest communication with the EU comes after three months of trade talks which have ended in deadlock. However, things might not be completely resolved just yet, as EU Council President Charles Michel warned that the EU will not “buy a pig in a poke” as it was not in any hurry to reach an agreement. He said: “We won’t just speed up. We have to remain focused on content and consequences.” While the UK has been pushing to speed up the discussions, the EU wants to make reasonable steps, with the next discussions to resume on 29 June. Johnson explained that he is against the talks “going on until the autumn, winter, as perhaps some in Brussels would like.”

Both sides have failed to reach an agreement on a free-trade deal as well as find common ground when it comes to certain EU standards and demands regarding fishing rights and security which the UK believes are binding it to EU rules. Also, the UK continues to refuse to accept the power of the European Court of Justice to settle any disagreements between the two sides.

Pound Remains Unpredictable

With Brexit negotiations in the background, Paul Meggyesi, Head of FX Research at JP Morgan noted that the pound’s trajectory would remain unpredictable. He said: “GBP is liable to become ever-more idiosyncratic as the UK nears the business end of the entire Brexit process, the last six months of the transition period, with still a trade deal to be negotiated. This puts GBP at the mercy of unpredictable Brexit news flows, and investors should be prepared for potentially quite violent swings in GBP as the market tries to benchmark probabilities of the potential outcomes and eventually moves from valuing GBP on a probability-weighted basis to pricing a central scenario and then the eventual outcome itself.”

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The British Pound has fallen against its major peers as investors believe that the trade negotiations between the EU and UK will collapse and result in a no deal Brexit.

David Frost, the UK's chief negotiator, said to Parliament’s Brexit committee that the EU needed to change its position in order to reach an agreement that suits both sides. He told committee chairman Hilary Benn: “It’s their call.”

He also reminded MPs that the government did not intend to extend the transition period. As a result, the pound dropped, with the chances of a soft Brexit now looking increasingly slim. Frost said that Prime Minister Boris Johnson will be meeting in June with leaders in Brussels to try and push trade negotiations along.

Reiterating the rhetoric of hard Brexiters, Frost said that the EU was still grappling with the issue of Brexit: "The EU is still coming to terms with the fact that there's a large country in Europe that doesn't want to be part of the EU's structure in some way, or to work on EU norms, or to relate to the EU as the reference point of its activity.” However, as a Financial Times article put it, it is Brexiters who “still do not understand Europe,” arguing that the UK is “owed” privileged access and that Europeans are treating them “beastly.”

Pound to react to no-deal Brexit

Erik Norland, Executive Director and Senior Economist of CME Group, said that the pound fell against both the Euro and the US Dollar as the two sides reached an impasse regarding the “lack of progress on issues ranging from fishing rights to business-competition regulations." Norland highlighted the pound’s volatility in regards to Brexit:

"Since the referendum, GBP has tended to rally when it looked like a deal was close (+21% versus USD into early 2018 as then Prime Minister Theresa May held negotiations) and tended to sell off when Brexit appears to be headed towards the “no-deal” scenario (-16% when May’s deal was repeatedly defeated)."

He clarified that as we move into the next round of negotiations, GBP options markets are more tilted to the downside. He added: "Moreover, most of the recent spikes in both implied volatility and risk reversal have been motivated by concerns over the progress of Brexit negotiations. The one exception occurred during an incipient dollar-funding crisis in mid-March. After the U.S. Federal Reserve stepped in, that issued was resolved quickly.”

Brexit

As economists attest, the British currency’s volatility will continue and is expected to remain reactive to Brexit headlines, especially through June when the deadline for the UK and the EU to agree to extend the Brexit talks is due. The markets will react favourably to an extension, while the possibility of an impasse and no extension to the December transition deadline will lead to a drop in the pound.

The pound is also expected to react to next week’s final round of negotiations.

As we move closer to Brexit deadlines and Brexit-related news, the pound will continue to be sensitive. If you are worried about currency exchange and the value of the pound when transferring your hard-earned money overseas, get in touch with Universal Partners and their dedicated foreign exchange specialists. You can discuss your currency needs, get the best exchange rates and navigate the uncertainty that lies ahead. Do not let Brexit impact your currency transfers, maximise your currency potential with UPFX.

British businesses conducting international trade and transferring their funds cross border regularly are increasingly worried about Brexit and the UK’s future relationship with the EU. Boris Johnson has been warned that the current trade talks are failing and that he needs to press the European commission president, Ursula von der Leyen, and EU governments to focus their attention on the negotiations in order to reach an agreement with the British government.

The prime minister has returned to Downing Street on Monday, and he needs to act fast in order to rescue the negotiations before 31 December when the UK will leave the single market and customs union. Both the British government and the EU have agreed that they need to see progress by June, while the UK government has said that there is a possibility to leave the EU without a deal.

The two sides will be meeting again on 30 April. The UK’s chief negotiator David Frost has rejected an extension of the transition period as the government is confident that it can agree on a free-trade deal.

The prospect of no-deal Brexit

However, the prospect of leaving the EU without a deal has become even more real as there are only two rounds of video-conference talks left, while senior figures from both sides agree that delivering a deal is now highly unlikely. An EU official has also noted the added problems of having to communicate online: “You don’t see all the faces of the people around the table; you don’t see the body language, you cannot have discussion in the margins. But having said that, this is how we are working now; we need to make the best of it.”

Last week’s talks have not been progressing successfully either, as there was disagreement between the EU’s chief negotiator, Michel Barnier, and his British counterpart, David Frost. Barnier pointed out that UK officials failed to engage and instead “listened politely” to the EU’s proposals. As he said: “I regret it, and this worries me.” According to the UK, despite their commitments to maintain high standards, the EU rejected proposals regarding the removal of certain trade barriers. Additionally, the UK disagrees with the central role that the European court of justice will play in dispute settlements.

In regards to the issue of Northern Ireland, there are concerns whether the UK will implement the Northern Ireland protocol  in the withdrawal agreement in order to avoid a hard border in Ireland and maintain checks on goods travelling from Britain to Northern Ireland. An EU official said: “You need to have customs checks on goods arriving in Northern Ireland, veterinary controls, a VAT system needs to be put in place.”

UK government not seeking an extension

The UK government has warned EU leaders that they need to change their position if there is going to be a post-Brexit trade deal. The PM believes that there will not be an agreement unless the EU recognises the UK as “an independent state.”

Michael Gove, Cabinet Office minister, has also told MPs that the government will not seek an extension to the transition period, which ends on December 31. He said that extending the period will only force Britain to make a financial contribution to the EU budget which “could be spent on our NHS.” He added that the EU has failed to recognise the UK’s unique status and instead has treated Britain “like the Ukraine,” as if it were a country seeking closer relations with the bloc.

 

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The pound has dropped to its lowest level since 27 December, after the ONS released its latest GDP estimate for the month of November.

ONS numbers

According to the ONS, the UK GDP grew by 0.1% in the three months to November, while it shrank by 0.3% in November 2019. The contraction in November was worse than expected as uncertainty over the general election and the threat of crashing out of the EU without a deal in October weighed on the economy.

As the ONS figures demonstrate, the services and production sectors grew by 0.1% and 1.1%, respectively in the three months to November 2019, but the production sector fell by 0.6%, its second consecutive rolling three-month decline, while manufacturing output fell by 1.7%.

The ONS stated: “Production fell by 1.2% in the month of November 2019, following growth of 0.4% in October. Within production, manufacturing fell by 1.7%. This was largely driven by large falls in the manufacture of transport equipment, food, and chemicals. These industries were also the main drags on growth in April 2019, just after the UK's original planned date to exit the European Union as shown in Figure 5. This may be indicative of some changes in the timing of activity around the second planned departure in October.”

Today’s figures confirm that the UK economy has slowed for two consecutive months, shrinking in April-June, then showing 0.4% growth in July-September, something which has helped to avoid a recession. It has slowed again to 0.2% in August-October, and 0.1% in September-November.

The Office for National Statistics’ head of GDP, Rob Kent-Smith, said that UK growth was at its lowest level since 2012: “Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing. The UK economy grew slightly more strongly in September and October than was previously estimated, with later data painting a healthier picture. Long term, the economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012.”

UK economy stagnant

The National Institute of Economic and Social Research (NIESR) noted that the “latest data confirm that UK economic growth had petered out at the end of last year. GDP was virtually flat in the 3m to Nov & latest surveys point to further stagnation in Dec. The short-term economic outlook is for more lacklustre growth.”

More importantly, the idea of the Bank of England having to cut interest rates has resurfaced as investment strategists and traders have mentioned.

Bank of England: Interest rate cut?

The latest GDP data has boosted the chances of UK interest rates being cut soon, possibly at the Bank of England’s meeting at the end of January. Matthew Cady, investment strategist at Brooks Macdonald, said: “UK GDP for November has come in at negative -0.3%. This is quite a bit weaker than had been expected. Consensus had been looking for zero growth month on month. Against this, both September and October were revised up by 0.2% and 0.1% points respectively. The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting.”

Peter Dixon, economist at Commerzbank, said that the possibility of an interest rate cut has risen to 50%: “With a growing chorus on the MPC apparently open to the prospect of a rate cut, if the data points in that direction, today’s release might well tip the balance of one or two members ahead of the meeting on 30 January, where the market probability assigned to a 25 bps cut has risen to 50% versus 5% at the start of last week.”

However, it is also wise to be positive and consider the GDP numbers as indicative of a specific time period rather than of a future trend, as business confidence can return after Boris Johnson’s election. As chief economist at PwC, John Hawksworth, clarified, today’s data relates to a specific “period of heightened economic and political uncertainty” and that “our latest survey of the financial services sector with the CBI does suggest some boost to optimism since the election.”

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