Lower growth forecast for UK but what does it mean?

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The Bank of England (BoE) has lowered UK growth predictions from 1.9 per cent to 1.7 per cent, as well as lowering expectations for the 2018 growth figure to 1.6 per cent from 1.7. What does this mean for Sterling, the economy, and ultimately, our pockets?

The Bank of England (BoE) has lowered UK growth predictions from 1.9 per cent to 1.7 per cent, as well as lowering expectations for the 2018 growth figure to 1.6 per cent from 1.7. What does this mean for Sterling, the economy, and ultimately, our pockets?

Poor wage growth, along with inflation on the rise has squeezed consumers and household incomes, leading to the downgrade.

In addition to the downgraded forecast, the BoE decided to keep interest rates the same at 0.25 per cent, marking ten years of no interest rate change – following a 6-2 vote, which will have been noted after recent months’ votes from Monetary Policy Committee (MPC) members. 

There has been much speculation about whether rates will rise this year, with MPC members suggesting it may be a wise move later in the year. It would not be a huge surprise for markets if interest rates are put up in the Autumn or towards the end of the year,” commented David Johnson, Founding Director of currency specialist, Halo Financial.

“The dramatic drop in Sterling strength over the past year has made imports more expensive, squeezing pockets in the UK,” continued Johnson. “This has led to further knock-on effects, such as a drop in consumer spending, affecting sectors such as cars, electrical and technology.”

“Ongoing speculation and concerns about post-Brexit Britain are having a dampening effect on consumers and markets alike, chipping away at confidence levels, and when combined with a slowing housing market, disappointing construction sector results and mixed economic data, the outlook becomes more gloomy,” continues Johnson.

“Yet, this all comes despite the Pound enjoying a moment of strength against the US Dollar earlier this week, the UK’s manufacturers performing well and strong service sector results, but they have not been enough to lift the mood, and this is reflected in the less favourable forecasts.”

“Currency traders are keeping a close eye on these key economic developments alongside the ongoing uncertainty and lack of direction for markets; cautiously building this into their hedging strategies. We are likely to see more noticeable currency movement yet,” commented Ricky Nelson, Head of Corporate Dealing at Halo Financial.

“Now’s the time to take stock and assess any risk from the Pound’s main currency pairings or political activity, as well as seeking opportunities presented by volatile markets. The rapid exchange rate changes in answer to economic uncertainty can have unexpected effects on people’s pockets, whether for individuals or for running a business.”

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