Brexit has cost average UK households at least £900, according to Bank of England governor Mark Carney. The central bank governor told MPs: "Real household incomes are about £900 lower than we forecast in 2016." Economists had previously estimated UK households would be £600 worse off. Carney drew criticism for his comments, in which he said the Brexit vote has lowered UK growth by up to 2%. The latest data from the Confederation of British Industry (CBI) has reported UK factory output slid to a two-year low in May. Ultimately for the UK, complications in Brexit negotiations and a weakening economy could continue weighing on GBP value.
Cable has been under the cosh for another week, struggling with local data and the renewed strength of the USD. The week features the inflation report (today), speeches by Carney and Retail Sales data, both due out tomorrow, as the key events. GB data disappointed with far less shopping than expected in March with a drop of 1.2% was recorded in retail sales. This time, a bounce worth 0.8% is on the cards. Bad weather was associated with the downfall and the first full month of Spring could reveal if the downturn was only temporary.
UK wages rose by 2.6%, only slightly worse than 2.7% expected and the Claimant Count Change showed a jump in jobless claims, another worrying sign. USD resumed its gains, using upward revisions in the retail sales report to move higher.
GBP/USD movement can be seen on the graph below:
The ONS reports annualised inflation reads at 2.4%, below consensus expectations for a reading of 2.5%. Monthly CPI data read at 0.4%, below the 0.5% forecast. Importantly for GBP, core CPI read at 2.1%, below the 2.2% forecast. The data is a negative for GBP which has given up the healthy gain on EUR, falling from a daily best at 1.1440 to 1.1378 at the time of writing. The BoE made it clear time and again, most recently via an appearance before Parliament, that it is watching data for guidance as to when next to raise interest rates, and rising interest rates tend to benefit GBP. However, the inflation rate has fallen back from a recent high of 2.8% during late 2017 resulting in the April 2018 figure being the lowest observed since January 2017.
Add the above to the never ending misery faced by Theresa May and her Brexit negotiators permanently facing wobble worse than me on small boat and the ensuing uncertainty we think the data could point towards the BoE opting to leave interest rates unchanged for a period of time to come.
GBP/EUR movement can be seen on the graph below:
EUR/USD had another largely negative week, falling to the lowest levels in 5 months. EUR/USD bounced back after hitting the new low on Monday but is now struggling again. Will it continue falling? PMI figures and the ECB meeting minutes (tomorrow) stand out but were not available as we went to print. Italy is still the principal cause for grave concern and ultimately instability, venting value for EUR.
EUR/USD movement can be seen on the graph below:
Not trading your currency is still a risk. The markets will move, volatility and relative values will vary but whatever your foreign currency exchange and international payment needs, you can rely on the team here at Aston Currency Management. Please do not hesitate to get in touch with us, we look forward to hearing from you. Now, if you will excuse me, I have to prepare for more normal service to resume next week. Have a great week.
Written by Damien Lipman