To many economic forecasters’ surprise, the UK economy has continued to grow following the surprise result of the summer’s referendum on EU membership. In fact, it is anticipated by the British Chamber of Commerce (BCC) that GDP will grow by around 2.1% this year, an improvement on the 1.8% forecast by the body only three months ago.
Post referendum growth
According to a report on business conditions compiled by accountancy and services group BDO, business output increased in November for the first time, following 17 months of decline, suggesting that the UK economy had now stabilised post-referendum.
The economy’s sustained growth since the Brexit vote has largely been put down to many firms adopting a ‘business as usual’ stance. However, the forecast for next year is less optimistic.
Familiar Concerns for 2017
Continued uncertainty over the UK’s relationship with the EU and impending increases in inflation could dampen growth in the medium term, leading to a slow-down, according to the BCC. In fact, the UK’s economy is expected to grow by just 1.1% in 2017, rallying slightly to grow by 1.4% in 2018.
According to the BCC, the improved growth forecast for the remainder of 2016 was sparked by the economy’s stronger than anticipated performance in the third quarter of the year, growing by 0.5%.
Despite the 1.1% growth forecast for 2017, the BCC opines that this will still reflect the UK economy’s weakest annual growth rate since the financial crisis in 2008. Although UK businesses have continued to operate as normal since the referendum, which has kept market conditions buoyant thus far, the fall in the value of sterling against other major world currencies is expected to have a much greater impact over the coming months.
Euro Exchanges Key
Business leaders across the UK will be monitoring the government’s early exchanges with Brussels in an effort to try to gauge the course that forthcoming Brexit negotiations will take when they commence next year. Clearly, the markets will do the same, and it’s fair to say that the UK economy can expect to have something of a bumpy ride over the next two years at least.
Forex Impact
GBP/USD Daily Chart Final Quarter of 2016:
Economic growth figures influence sentiment when it comes to the major Forex pairs, so a consensus that Uk growth is likely to halt, is further bad news for GBP. The US dollar received an unexpected boost from the Trump presidential victory and the backdrop of a strengthening dollar against the weakening pound looks set to continue.
The GBP/EUR pair is less straightforward due to Brexit position. The split is potentially bad news for both economic areas – but there are no firm signs of what might happen, either in negotiating terms, or economic outlooks. Uncertainty has led to a certain amount of “treading water”, but financial reporting over the next 12 months could have a greater impact than usual on Forex – as strongly worded headlines, one way or the other – could create over reactions on a jittery market.