Cut in UK Interest Rates Forecast : Pound Sterling Outlook Slumps Dramatically

July 1, 2016 - Written by David Woodsmith

STORY LINK Cut in UK Interest Rates Forecast : Pound Sterling Outlook Slumps Dramatically

The Pound has crashed against peers before the trading session closes, having been laid low by the Chancellor dropping the budget surplus target for 2020.

Bank of England (BoE) Governor Mark Carney Hinted at Benchmark Interest Rate Cut

The Pound Sterling (currency : GBP) sank and UK equities jumped late yesterday following a press conference from Bank of England (BoE) Governor Mark Carney. The BoE supremo told assembled journalists that in his, ‘view, and I am not pre-judging the views of the other independent Monetary Policy Committee (MPC) members, the economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.’

Carney went on to explain the root of the downturn in economic activity, stating that, ‘it now seems plausible that uncertainty could remain elevated for some time, with a more persistent drag on activity than we had previously projected.’

The Pound recorded sustained losses following these comments, plunging from above the 1.2100 GBP EUR threshold during the middle part of the afternoon equities session to below the 1.2000 GBP EUR level. Carney’s heavy hint that the August Monetary Policy Committee meeting may yield an interest rate cut is forecast to weigh down the Pound during coming weeks.

Will Brexit Cause a Technical Recession?

Erstwhile Prime Minister Margaret Thatcher’s Chief Economic Adviser Alan Walters famously defined a technical recession as, ‘two or more consecutive quarters of non-positive economic growth’. Carney warned before last week’s referendum that, in his view, the downsides of a Brexit vote could ‘possibly include a technical recession’. Yesterday’s press conference suggests that Carney’s belief has been galvanised by the events of the last week.

Today’s data highlight comes from the other side of the Atlantic in the form of last month’s ISM Manufacturing survey. The previous edition printed at 51.3 and a similar result is anticipated for this afternoon’s number; anything better than this and the downward movement for the Pound Sterling US Dollar exchange rate, triggered by Carney’s comments, could send the pair down into the 1.2000s GBP USD for the first time in many years.

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TAGS: Pound Euro Forecasts Pound Sterling Forecasts