Could UK Productivity be Stirring Once Again? GBP AUD Exchange Rate Inches Ahead

January 5, 2018 - Written by Ben Hughes

STORY LINK Could UK Productivity be Stirring Once Again? GBP AUD Exchange Rate Inches Ahead

UK Productivity Shows Signs of Stirring – GBP Exchange Rates Capitalise

The productivity of British workers increased at the fastest rate in six years over Q3 2017 - news that effectively bolstered the Pound Australian Dollar (GBP AUD) exchange rate on Friday.

According to figures from the Office for National Statistics (ONS) the output per hour over this period increased by 0.9%, up from the previous period’s -0.1% drop and consistent with the forecast.

Britain has long struggled with issues of productivity growth, with the recovery from the 2008 crisis being a great deal slower than expected.

Nonetheless, this news could be evidence that productivity is finally starting to pick-up, though further, sustained developments in this regard will likely be needed to convince the markets.

Howard Archer, Chief Economic Adviser at the EY Item Club shared this sentiment, stating:

‘There needs to be sustained improvement to ease concerns over the UK’s overall poor productivity record since the deep 2008/9 recession’.

Australian Dollar (AUD) Exchange Rates Tumble as Aussie Trade Deficit Widens

The Pound’s lead against the Australian Dollar was further facilitated today by news that the Aussie trade deficit widened at the end of 2017.

According to data from the Australian Bureau of Statistics (ABS), the Australian trade deficit widened to AUD -0.63 billion in November, below the previous period’s AUD -0.30 billion and significantly below the expected surplus of AUD 1.1 billion.

This was predominantly due to a steep fall in the export of coal, coke and briquettes, with Chinese efforts to curb air pollution largely responsible for the drop.

The Australian Dollar (AUD) quickly pared some recent gains as a result, though hopes that the Reserve Bank of Australia (RBA) might move for a rate hike in mid-2018 prevented the fall from being too steep.

GBP AUD Exchange Rate Forecast: RBA Rate Hike in Mid-2018?

The Australian Dollar performed relatively well this week, bolstered by the weakness of the US Dollar (USD) but also on news that HSBC Australia is predicting a rate hike from the RBA in mid-2018.

In the latest Asian Economics Report for Q1, HSBC Australia cited the growing economy, improving mining industry and tightening labour market as reasons why a rate hike might be here a lot sooner than markets originally thought.

The report stated:

‘As conditions in the mining industry improve and the local labour market tightens up, we expect a modest pick-up in wage growth which should, in turn, see the RBA begin to normalise its current very stimulatory cash rate setting in 2018’.

The report did, however, point to concerns that wage growth might stay sluggish for longer than anticipated, especially if other structural factors offset the cyclical lift of the economy.

Nonetheless! This possibility could put increased pressure on the GBP AUD exchange rate moving ahead, particularly with the Bank of England (BoE) not expected to move for a rate hike until 2019.

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TAGS: Australian Dollar Forecasts Currency Predictions