U.K. Growth Forecast Cut
July 25th: Highlights
- IMF cites weak first quarter
- U.K. ministers back Brexit transition period
- Hungary backs Poland in EU spat
IMF predicts 3.5% global growth this year
Global growth is expected to remain unchanged at 3.5% in 2017 and 3.6% in 2018.
It cut its expectation for growth in the U.K. to 1.7% in 2017. Their prediction of 1.5% growth in 2018 was unchanged. The global lender also cut its forecast for the United States to 2.1% from 2.3%. Next year is likely to see a larger variance with expectation falling to 2.1% from 2.5% previously.
Both countries underperformed in the first quarter of the year which, in the case of the U.S., was a veiled comment on the Fed’s interest rate hikes.
Brexit continues to weigh on U.K. growth expectations and political concerns have been added since the inconclusive June election.
The pound, ironically, climbed away from it recent lows but this was technical following the initial rejection of the 0.9000 level against the Euro. It corrected to 0.8920 before further buying of the common currency drove it back to 0.8945.
U.K. Ministers soften hard Brexit stance
Yesterday he seemed to soften his stance somewhat agreeing that a transition period would smooth the U.K.’s departure. This had previously been considered as simply putting off the inevitable as at some point the break would have to happen.
Dr. Fox’s view was backed up by Business Minister, Greg Clark, who agreed that such a period could lead to a “softer” exit. Fox, who is in the U.S preparing the ground for a U.K./U.S. post-Brexit trade agreement, went on to say that it was “optimistic” to expect a free trade deal with the EU to be concluded by 29th March 2019, the date on which the U.K. officially departs.
Against the dollar the pound is also recovering from its recent weakness. It now appears to be supported above 1.3000, last trading at 1.3037.
Polish President defuses EU row, for now
Brussels had maintained that such legislation would be contrary to EU law where the divide between Government and the judiciary is a basic requirement. The row is likely to escalate as the Hungarian Prime Minister backed Poland over what he called the “EU inquisition”.
It is immaterial that the legislation is unpopular and likely to be vetoed, there is a growing feeling throughout the eastern states that the EU is exerting too much control over their domestic affairs and this is leading to a rising nationalist feeling which had seemingly gone away following elections in France and The Netherlands.
There has been no reaction from the currency which is still very strongly supported having corrected to 1.1625 against the dollar yesterday. A rise towards the August 2015 high of 1.1715 is now likely given the contrasting outlooks for the EU and U.S. economies.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”