Published On: Sat, Feb 11th, 2017

Bank of England Shows Increased Confidence in UK Economic Growth

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Bank of England Shows Increased Confidence in UK Economic Growth – Why Growth Predictions Were Upped on Super Thursday

Super Thursday was a day that started off with a lot of anticipation from currency traders, with the pound seeing a rally in the morning ahead of the announcements people were waiting for from the Old Lady of Threadneedle Street. Both the pound and the dollar have been the ones to watch so far this year, with new developments on Brexit or more Trump related news impacting the pair just about every day. A Bank of England Super Thursday is always a key date in the economic calendar, but this, the first of four for 2017, was one that took place against a backdrop of existing economic intrigue.

British Pound GBPCHF

The Lows of The Super Thursday Press Conference

However, just as the Fed did, the BoE held fast on interest rates, and analysts seem to be united in agreeing we won’t see a rise this year. Then, Mark Carney’s press conference added a sombre tone by reminding us that despite some of the positives in the super Thursday announcements, Brexit will have economic consequences, and inflation is probably set to rise. This sent the pound tumbling back down again, and some currency trading experts think it could be headed toward an average of $ 1.20 for the month. Carney’s warning comes at a time when some were experiencing renewed faith in the possibility of a Brexit that could be carried out without the kind of hits to the pound we saw after the referendum, and so was probably the most important take away from the press conference – aside from the more upbeat message about UK GDP growth.

An Upgraded Growth Prediction

The Bank of England upgraded its growth prediction for the UK’s GDP from 1.4% to 2%. This is a significant increase, and was merited by the performance of the economy in the wake of June 2016’s referendum. While the pound took a very big hit, there was actually no real decline in consumer spending – something that had been expected and factored into earlier predictions. Domestic demand has been strong, and the increased positivity about 2017 growth has been largely attributed to consumer resilience within Britain.

Growth to Decline as Brexit Progresses

However, despite the upgrade to growth predictions for this year, the longer term predictions show growth slowing as the ‘Brexit journey’ continues, dropping to 1.65 in 2018 and then rising slightly to 1.7% in 2019. With concerns about inflation, 2018 could be something of a problem year for some, especially if, as many analysts predict, interest rates are not raised until 2019.

The GBP and USD ‘Special Relationship Continues

For forex traders, the GBP and USD pair is going to continue to be the one getting all the attention, as with both the Fed and BoE taking similar positions on rates, and the US too showing slightly more optimistic growth predictions – even with ongoing trade war fears around Trump’s protectionist strategies – neither has seen anything happen on Super Thursday that is likely to quell the turbulence.

If this is a pair you follow, then as has been the case for months now, you are going to have plenty to keep your eyes on over the next quarter before 2017’s second Super Thursday comes around – including, of course, the invocation of Article 50.

 

FXTimes

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