Pound Sterling (GBP) Forecast Soars after Unemployment Results

July 19, 2016 - Written by John Cameron

STORY LINK Pound Sterling (GBP) Forecast Soars after Unemployment Results

Sterling has continued its rollercoaster journey this week, having climbed across the board on supportive Bank of England statements and falling unemployment in May.

The Pound has little hope of recovery in the near-term, given how pessimistic the International Monetary Fund (IMF) has recently been about UK growth in 2016 and 2017.

Better-than-Expected Consumer Prices Growth Failed to Inspire GBP Exchange Rate Gains

An above-expectations set of June UK Consumer Price Index inflation figures has failed to strengthen the Pound Sterling (currency : GBP) in the global currency markets today.

The consensus expectation amongst analysts was that this morning’s headline UK inflation figure would show that domestic prices had risen at a year on year pace of 0.4%. The result of 0.5% should therefore have provided the Pound with a fillip; however, the Sterling euro exchange rate remained stubbornly in the lower part of the 1.1900s during the immediate aftermath of the result.

The Office of National Statistics (ONS), which publishes the monthly number, noted in its accompanying report that the pace of British price increases,

‘is the same as observed for March and slightly above the 0.3% recorded for all other months of 2016. The rates for 2016 to date are still relatively low but are above those generally experienced in 2015, which was a year of historically low inflation, with the rate being at or around zero for much of the year. The largest downward pull on inflation in June 2016 and for 2016 to date comes from prices for food and non-alcoholic beverages. There also continues to be a downward pressure from transport prices, but this has eased during 2016 from the 2015 position. Upward pressures come from a variety of categories, most notably restaurant and hotel bills.’

It appears that investors discounted the upward pressure on domestic prices from discretionary purchases and instead concentrated on the easing of transport costs, which are expected to fall further in next month’s counterpart data thanks to a softening in Crude Oil prices.

The other factor behind the dislocation between the value of the Pound and today’s domestic inflation data is the strong expectation that the Bank of England (BoE) will be cutting its already rock bottom headline rate of interest to a fresh record low on 4th August. In truth, there was no realistic outcome from this morning’s data which could have nudged the Pound higher, given the presence of this Sword of Damocles.

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TAGS: Pound Sterling Forecasts