Pound Sterling (GBP) Outlook Bleak on Retail Sales Result

July 20, 2016 - Written by John Cameron

STORY LINK Pound Sterling (GBP) Outlook Bleak on Retail Sales Result

Sterling has crashed lately, due to retail sales in June for the UK falling on all accounts.

The Pound has made major gains across the board lately, on account of the latest unemployment rate results showing a dip from 5% to 4.9% in May.

IMF Report Weighed Heavily on GBP Exchange Rates

The International Monetary Fund (IMF) published the latest edition of its World Economic Outlook earlier today and it made extremely grim reading for investors holding the Pound Sterling (currency : GBP).

The widely-read report placed much emphasis on last month’s UK Referendum result which saw voters reject the European Union and come out in favour of an unexpected Brexit. The update observed that,

‘The outcome of the U.K. vote, which surprised global financial markets, implies the materialization of an important downside risk for the world economy. As a result, the global outlook for 2016-17 has worsened, despite the better-than-expected performance in early 2016. This deterioration reflects the expected macroeconomic consequences of a sizable increase in uncertainty, including on the political front. This uncertainty is projected to take a toll on confidence and investment, including through its repercussions on financial conditions and market sentiment more generally.’

The IMF was relatively sanguine about the very near-term effects on the UK economy, predicting a slight dip in domestic economic activity this year. However, the austere organisation forecast a real hit for the UK economy during 2017, finding that,

‘Among advanced economies, the United Kingdom experienced the largest downward revision in forecasted growth. While growth in the first part of 2016 appears to have been slightly stronger than expected in April, the increase in uncertainty following the referendum is projected to significantly weaken domestic demand relative to previous forecasts, with growth revised down by about 0.2 percentage points for 2016 and by close to 1 percentage point in 2017.’

IMF Downgrade to Global Growth Forecast to Weigh on Commodity Dollars

The slight downward revision to its world Gross Domestic Product forecast for the next two years is expected to suppress support for the Commodity Dollars (AUD, NZD, CAD), but the real loser from the UK’s decision to Brexit is, without a doubt, the Pound Sterling.

Analysts forecast that if, as anticipated, the Bank of England (BoE) decides to cut its benchmark interest rate to a fresh record low on 4th August, then the real move out of Sterling may commence in earnest.

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