Pound Sterling Forecast Improves on NIESR Report

Published: Thursday, 10 December 2015 08:00 BST - Written by Ben Hughes

STORY LINK Pound Sterling Forecast Improves on NIESR Report

Pound Sterling (GBP) Boosted by NIESR GDP despite Downward Revision for October's Print

The Pound Sterling (currency : GBP) has put in a meek performance against the other sixteen most actively traded global currencies this week and, on the face of it, the UK unit’s near-term prospects were not greatly assisted by the latest National Institute of Economic and Social Research (NIESR) Gross Domestic Product Estimate, published earlier this week.

The widely-respected body uses the same econometric modelling software as the UK Treasury, so its forecasts are always closely-monitored by investors.

The news contained in the NIESR’s latest report, which was published on Tuesday afternoon, that it had downwardly revised its October quarterly rolling GDP estimate to an annualised 0.5% therefore came as a body blow to the Pound.

The November version of the figure showed at a slightly healthier 0.6%, but it would appear unlikely that this will prove sufficient to assuage investors’ fears that Britain’s economic recovery is running out of momentum.

Bank of England (BoE) Predicted to Hike Benchmark Interest Rate in 2017

However, the NIESR’s report contained one nugget of information which could trigger a pronounced recovery for Sterling in the short-to-medium term.

Following comments from Bank of England (BoE) policymakers during recent weeks, most economists now believe that UK interest rates will not be heading higher until 2017.

BoE Governor Mark Carney’s suggestion to the UK parliamentary select committee last month that a tightening of domestic monetary policy remains ‘a long way off’ has held back the Pound during recent weeks.

Dovish BoE Chief Economist Weighs on Sterling Demand

Comments from the BoE’s Chief Economist Andy Haldane on the same day confirming that it remains possible that the UK central bank could cut interest rates when it next changes Base Rate added additional selling pressure on the UK unit.

The fact that the NIESR sees things very differently has the potential to trigger a fresh reversal for the Pound.

The think tank’s report asserted that Britain’s current, ‘rate of growth is consistent with the continued absorption of spare capacity in the UK economy and our own view that the Bank of England is most likely to begin to increase rates in February 2016.’

The upshot could see a pronounced improvement for the Pound Sterling forecast come the New Year.

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TAGS: Pound Sterling Forecasts