Friday, 28 October 2016

Positive Economic News for Britain, but Sterling moves lower

Yesterday saw some good news stories for UK Plc. Firstly growth for the last quarter beat forecasts, coming in at 0.5%. Before the referendum, the OBR predicted a 'Leave' vote would see Q3 growth at -0.1% and a 'Remain' vote would show growth of 0.5%. The actual numbers therefore show that the UK economy is performing well despite 'Brexit'.

In fact, actual growth figures have surpassed how the experts thought the economy would fare if we had voted to remain within the EU.

In other good news, Nissan announced that it would build 2 new cars at its Sunderland plant, showing that multinational companies have faith in Great Britain. There had previously been fears they would move production overseas due to concerns over the UK exiting the European Union. This follows news earlier this week that Heathrow expansion would go ahead, showing that the UK is looking forwards.

Pound falls despite the positive news


Usually good news like this would strengthen the Pound and send exchange rates higher, but in the current climate, that is not what's happened. There was a brief spike in Sterling but it was very short lived, with the Pound even lower today than it was yesterday. This is because despite the economy showing impressive resilience and robust growth, global investors are still shunning the Pound due to the uncertainty. Even the Chancellor Philip Hammond warned that despite the resilience of the UK economy, there is a period of uncertainty ahead.

For  those that need to buy Euros, what has happend this week should ring alarm bells. Even with positive economic news the Pounds is still unable to make gains. If that's the case, imagine what could happen to Sterling if the economy does start to falter next year once negotiations start in earnest!

Regular readers of this blog will know that I'm positive about the future of Britain, and firmly believe that in the medium to long term, the economic prospects of the UK will not be affected by leaving the EU. We're still a European country and will retain friendly trading relations with our neighbours. However, as yesterday shows, even all the good news in the world will not help the Pound while uncertainty remains. The Pound is likely to weaken further as we get closer to triggering article 50. Those that need to convert Sterling to another currency should consider fixing a rate with a 'Forward Contract' if they want to protect themselves against the Pound dropping further.

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