The Analysis Comment
BoE slashes growth forecasts, impact on Sterling
Amidst uncertainty over the future of Brexit, the results are already being seen in relative currency strengths
Andy Scott Associate director, JCRA
Last month, Sterling slid across the board as the market became less optimistic over Brexit, and the Bank of England slashed its growth forecasts.
Rally As I write this, having rallied strongly for two weeks straight on market optimism that a ‘hard Brexit’ was no longer as much of a risk, Sterling is now in retreat. The reality of the situation is that both the
European Union and the UK are dug in to their respective positions, with Theresa May insisting that no-deal remains an option and there will be no extension to Article 50.
Heavily defeated With only seven weeks to negotiate an acceptable amendment to the current withdrawal agreement that was so heavily defeated last month, the market is starting to re-evaluate the risk for Sterling. What we have learnt since the Brexit vote
in 2016 is that when Sterling rallies on Brexit optimism, the reality will often turn out to be disappointing and Sterling will weaken.
What we have learnt since the Brexit vote in 2016 is that when Sterling rallies on Brexit optimism, the reality will often turn out to be disappointing and Sterling will weaken
Slashed growth forecast Meanwhile, the Bank of England just slashed its growth forecast for this year, reflecting the slowdown in the UK economy that appears to be deepening as a result of Brexit and weaker global growth. The slower growth means there is less risk
of inflationary pressures building and less pressure for the bank to raise interest rates. The European Commission also slashed
its growth forecast for the Eurozone, highlighting the diminished prospects for economic growth in Europe.
Risk of weakness We see risks that Sterling weakens further while there is no imminent prospect of a breakthrough in the current Brexit stalemate. This is especially the case versus the
Dollar, where the high yield continues to make the currency attractive. The weak growth and risks that exist to
the Eurozone from Brexit may limit the downside for the Sterling-Euro pair, but we could still see lows of 1.10. CCR
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www.CCRMagazine.com
March 2019
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