Pound Sterling Forecast Deteriorates on Lack of EU Deal

Published: Friday, 19 February 2016 16:00 BST - Written by John Cameron

STORY LINK Pound Sterling Forecast Deteriorates on Lack of EU Deal

UK Public Finance Data Failed to Provoke Pound Sterling (GBP) Exchange Rate Gains

Today’s session in the global currency markets has been a data-heavy one, with multiple releases in various corners of the world informing price action.

Official statistics in the UK helped shape the Pound’s performance on the day, with last month’s domestic Retail Sales and Public Borrowing data released concurrently at 0930hrs. The statistics revealed that UK shop sales soared in January, jumping by an annualised 5.2%; however, this positive news was tempered by a downward revision to 1.8% for the all-important December figure.

Meanwhile, the British government borrowing numbers provided the Pound with a fillip, revealing the largest surplus of income over expenditure for the UK government since 2008. However, the encouragement which these public finance numbers provided investors holding the Pound was once again tempered, this time by comments from the Office for Budget Responsibility (OBR). The government appointed body noted that,

‘On the current data, meeting our full-year forecast for 2015-16 would require borrowing to fall by £18.4 billion in the year as a whole. That implies borrowing of £7.0 billion over the next two months, compared with £14.8 billion in the same period last year. Our November forecast does assume stronger growth in receipts in the remainder of the year (particularly income tax and stamp duty land tax) but local authority borrowing as measured in the statistical bulletin looks likely to exceed our November forecast. Considerable uncertainty remains over prospects for the remaining two months of the financial year, while data on local authority borrowing are often subject to substantial revisions over subsequent months.’

The prospect that UK government borrowing numbers for the remainder of this year may disappoint held back Sterling on the day. The UK unit had started the session at well above the 1.2900 threshold against the euro (currency : EUR), but the pair was changing hands back down in the low 1.2800s by the middle part of the day.

Pound Sterling (GBP) Declined as EU Referendum Talks Drag On

Ongoing negotiations between the UK’s delegation and the leaders of the 27 other member states in Brussels provided an additional drag on the Pound.

The British contingent had been hoping to have a deal stitched up by midday, but this deadline was pushed back throughout the session. Investors shifted out of Sterling-denominated assets as the day wore on in anticipation that a deal might not be done.

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TAGS: Pound Sterling Forecasts