Sterling slides as Bank of England slashes growth forecasts

The London Economic

The Bank of England has downgraded its growth forecast for 2021 growth to at least one.2%, which may function as the smallest rise since 2009.

Sterling tumbled on the news and was trading 0.6% down versus the US dollar at $1.285. Against the euro, the pound was down 0.3% at EUR1.134.

The PM flew to Brussels today to push for concessions from EU leaders on the divorce deal agreed with them last year, that has been rejected by Parliament.

Both Mr Tusk and Juncker have repeated the EU will not consider reopening discussions on the backstop.

Schroders Senior European Economist, Azad Zangana said: “The Bank has blamed slower activity abroad, but most from the downgrade is caused by the results of the heightened level of uncertainty related to Brexit. “

Andy Scott, Associate Director at JCRA, the independent financial risk management consultancy said: “Sterling slid across the board on Thursday because the market became less optimistic over Brexit, and also the Bank of England slashed its growth forecasts. Having rallied strongly for 2 weeks straight on market optimism that a “hard Brexit” wasn't any longer as much of a risk, Sterling has become in retreat.

“A realistic look at the situation is that both EU and also the UK are dug directly into their respective positions, with Theresa May insisting that no-deal remains a choice there will be no extension to Article 50. With only seven weeks to barter a suitable amendment to the present withdrawal agreement which was so heavily defeated last month, the marketplace is starting to re-evaluate the risk for Sterling. What we have learnt since the Brexit vote in 2021 is that when Sterling rallies on Brexit optimism, the reality will frequently turn out to be disappointing and Sterling will weaken.

“Meanwhile, the financial institution of England just slashed its growth forecast with this year, reflecting the slowdown in the UK economy that appears to be deepening because of Brexit and weaker global growth. The slower growth means there's less risk of inflationary pressures building and fewer pressure for that bank to raise rates of interest. The ecu Commission also slashed its growth forecast for the Eurozone, highlighting the diminished prospects for economic growth in Europe.

“We see risks that Sterling weakens further nevertheless there is no imminent prospect of the breakthrough in the present Brexit stalemate. This is particularly the case versus the Dollar in which the high yield is constantly on the result in the currency attractive. The weak growth and risks which exist to the Eurozone from Brexit may limit the down-side for the GBP/EUR pair, but we're able to still see recent lows of 1.10.”

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