October 12, 2017 - Written by John Cameron
STORY LINK GBP CAD Exchange Rate Slides as Consumer Credit Set to Tighten
12/10/17 PM Update- The Pound nosedived against the Canadian Dollar in afternoon trade today as the fifth round of Brexit talks close with the EU's chief negotiator Michel Barnier claiming that the two sides were in deadlock over the UK’s divorce bill.
While suggesting that there was ‘new momentum’ and progress being made in other areas Barnier said that disputes over the bill was ‘disturbing’, adding that he would not be able to propose to the European Council that ‘discussions on the future relationship’ should proceed at this time.
This was a blow to the UK as it will mean that trade talks will likely be delayed until at least the end of the year.
Original article continues below.
The Pound Canadian Dollar (GBP CAD) exchange rate trended lower today as UK banks announce plans to curb consumer credit.
Pound (GBP) Dips as Credit Crunch Looks Set to Hit Spending
Sterling sentiment took a blow this morning as a survey published by the Bank of England (BoE) suggests that UK banks are set to drastically cut the rate of consumer lending over the next quarter.
The report shows that UK lenders are planning their biggest credit crunch since the collapse of Lehman Brothers in 2008 in the wake of recent credit warnings from the BoE’s Financial Policy Committee (FPC).
In most recent report last month the FPC warned that spiralling levels of consumer credit was a potential ‘pocket of risk’ for the UK, with any sudden downturn in the British economy possibly causing the whole house of cards to collapse as consumer default on debt repayments.
The BoE’s survey also revealed that banks are becoming more thorough in vetting credit card and unsecured loan applications, reporting that;
‘Lenders reported that the availability of unsecured credit to households decreased in Q3 and expected a significant decrease in Q4.’
‘Credit scoring criteria for granting both credit card and other unsecured loans were reported to have tightened again in Q3, while the proportion of unsecured credit applications being approved fell significantly.’
While the reining in of consumer credit will be welcome news to the BoE, it will not be so welcome to investors as it will likely result in a fall in household spending, a major contributing factor in the UK’s economic growth.
Canadian Dollar (CAD) Weakened by Housing Figures
Meanwhile the Canadian Dollar was forced to cede some ground in the afternoon as Canada released its latest Housing Price Index, revealing that price growth slowed from 0.4% to 0.1% in August, slipping below expectations of more modest decline to 0.3%.
The slowdown in prices was not too much of a surprise however after two interest rate hikes from the Bank of Canada earlier in the year raises borrowing costs for consumers, lowering domestic demand.
However despite the slowdown Canadian house price index still reached its highest level on record, suggesting there is still some steam left in the market.
GBP CAD Forecast: Haldane to Hint at Novembers Rate Hike?
Looking ahead the GBP CAD exchange rate could recoup some of its losses later this afternoon following a speech by Bank of England Chief Economist Andy Haldane.
The key BoE policymaker has reportedly been on the fence in recent months over whether the central bank should raise interest rates or leave them at record lows and any hints from Haldane today that he would support a rate hike in November would likely cause Sterling sentiment to rocket.
Meanwhile the Canadian Dollar may retreat later today if the decline in US crude stocks slowed as expected last week, with a subsequent fall in oil prices likely to weigh heavily on the ‘Loonie’.
Current Interbank Exchange Rates
At the time of writing the GBP CAD exchange rate was trending around 1.6415 and the CAD GBP exchange rate was trending around 0.6087.
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TAGS: Pound Canadian Dollar Forecasts