GBP CAD Exchange Rate Skyrockets as UK GDP Shows Unexpected Growth

October 25, 2017 - Written by John Cameron

STORY LINK GBP CAD Exchange Rate Skyrockets as UK GDP Shows Unexpected Growth

The Pound Canadian Dollar (GBP CAD) exchange rate surged close to a four-month high today following an unexpected uptick in the UK’s GDP figures in third quarter.

Pound (GBP) Surges as GDP Beats Expectations

Sterling sentiment shot higher earlier this morning as data showed that the UK economy grew faster than expected during the summer.

According to data published by the Office for National Statistics (ONS) that UK’s economy is estimated to have grown by 0.4% in the third quarter, topping expectations that GDP would have remained flat at 0.3%.

The rise in growth was largely attributed to the UK’s all important service sector, with strong growth in the sector helping to offset another decline in construction activity as Britain’s building sector officially enters a recession.

Darren Morgan, Head of National Accounts at the ONS said;

‘Growth in the third quarter of 2017 continued at a similar rate as seen in the first half of the year. Services, led by increases in IT, motor trades and retail, continued to drive GDP growth.’

The positive rise in the UK’s economic growth in the last quarter is also seen as greatly improving the chances of a rate hike from Bank of England (BoE) when it meets next week for its latest rate decision.

Ian Stewart, chief economist at Deloitte said;

‘For weeks, the Bank of England has been semaphoring that interest rates are heading up. Today’s growth figures show that, despite the Brexit headwinds, UK growth is good enough to give the Bank the green light for a rate rise next Thursday.’

Canadian Dollar’s (CAD) Tumbles as BoC leaves Rates on Hold

The Canadian Dollar offered little resistance against the Pound this afternoon as the Bank of Canada (BoC) voted to leave interest rates on hold in October.

After voting for two consecutive rate hikes in previous meeting policymakers at the BoC struck a decidedly more dovish tone today as they warned that the bank would remain ‘cautious’ in regards to future hikes as it looks to gauge the impact the recent hikes and a strengthening Canadian Dollar will have on economic growth.

Policymakers said;

‘While less monetary policy stimulus will likely be required over time, Governing Council will be cautious in making future adjustments to the policy rate. The Bank will be guided by incoming data to assess the sensitivity of the economy to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.’

Officials also pointed to the growing risks associated with rising US protectionism and the possible threat it poses to the North American Free Trade Agreement (NAFTA) as another reason for the bank to hold rates at this time.

While economists had previously predicted that the BoC would deliver its next rate hike by the end of the year, in light of today’s meeting most are now forecasting that the next move is likely to occur in spring next year.

GBP CAD Forecast: UK Retail Activity to Slow after Bumper September Reading?

Looking ahead the GBP CAD exchange rate may cede some ground on Thursday with the release of the Confederation for British Industry’s (CBI) latest Distributive Trades Index as economists forecast that it will have slumped from 42 to 15 in October as UK retail sales normalise again after an a particularly strong September.

Meanwhile the Canadian Dollar may find itself tumbling further at the end of the week as Canada publishes its latest budget balance, with analysts predicting that the public deficit will have exploded from C$0.2bn to C$2.8bn in August.

Current Interbank Exchange Rates

At the time of writing the GBP CAD exchange rate was trending around 1.6899 and the CAD GBP exchange rate was trending around 0.5914.

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TAGS: Pound Canadian Dollar Forecasts