Can We Predict What Will Happen To The Pound?

Can We Predict What Will Happen To The Pound?

As we all know the Pound took a beating after Britain voted to leave the EU. The value of the Pound slumped to a 31 year low following the Brexit vote. However, there is hope the initial shock of the Brexit vote will finally disappear, especially with the upcoming month. Theresa May has spoken of her plans to trigger article 50 at some point this month. It will be an interesting time for Sterling.

UK Politics

Nicola Sturgeon has discussed the possibility of staging a second independence referendum for Scotland as Britain formally starts the process of leaving the European Union. If a second referendum did take place there is uncertainty that the results will be similar to before. This is due to the fact that approximately 62% of Scottish citizens voted for the UK to remain in the EU. There is a possibility Theresa May could block the referendum however she risks a constitutional crisis. With all that is going on with Brexit, Mrs May would more than likely wish to keep the peace. However the news of a possible second Scottish independence referendum caused the pound to depreciate as much as 0.6% in value against other currencies.

The Pound had begun to rebound against the Euro after news of Marine Le Pen’s popularity in the French presidential elections. With all the current political uncertainty the Pound is rather volatile and is struggling to find a clear direction after news of the recent parliamentary defeat regarding the triggering of article 50. It’s a tense time for the government at the moment. Theresa May has even mentioned she may try to trigger Article 50 earlier than initially declared. The House of Lords demanded that as part of the Brexit bill the rights of EU citizens living in the UK must be protected. The uncertainty is deterring investors.

Bank of England & UK Inflation

After the pound slipped following the referendum, the Bank of England lowered interest rates with the expectations that the UK economy would not do so well after the leave vote. The base rate was lowered to keep money flowing through the economy. Britain exceeded expectations as the latest news for Q4 of 2016 proved the UK economy grew by 0.7%. Even though Q4 of 2016 showed growth, it was recently announced that UK manufacturing has taken a hit as growth has been slower than expected. There is still a lot of uncertainty regarding Britain’s exit plans from the EU.

One factor which may see the possibility of a base rate rise is UK inflation. The current inflation rates are the highest seen since June 2014. UK inflation has jumped to 1.8% which is just short of the 2% target set by the Bank of England. Even though it is lower than the target inflation will still be felt in British households. Inflation has been slowly on the rise since the EU referendum vote. This is due to a weaker pound and increasingly expensive imports to the UK. The Bank of England may feel compelled to raise the base rate if inflation continues to grow.

The Bank of England also released figures showing in January UK consumer credit grew by 1.4 billion Pounds. However even though the economy is doing better than expected, there have been no plans to raise the interest rates. This is due to the Bank of England believing the fragility of the UK economy is still relevant. However, experts are arguing that keeping the Pound low may be doing more damage than good. Households are also unable to save due to low-interest rates. Investors will be looking for other ways to invest their money.

Pound predictions

Over the past few months, there have been plenty of predictions regarding what is going to happen to the Pound during 2017. Most have been quite negative. However recently the pound had shown slight improvements against the Euro. This came after news of the far-right French National Front party were doing well in the latest polls for the presidential elections. There are several European elections due and far-right political parties are recording increases in popularity. Due to this, the Euro may suffer, hopefully restore some of the Pound’s value. The Chancellor’s budget may also have an impact on the Pound. As Phillip Hammond has not been very forthcoming with information, the budget may provide some clarity.

Also, analysts at US bank Morgan Stanley have recently stated they believe the Pound will rise against the US dollar to levels seen pre- EU referendum. They believe this will apparently happen before Brexit negotiations have been finalised. This means there is the possibility of 2 years of uncertainty whilst Britain negotiates its exit from the EU. Geoff Yu from investment bank UBS has forecast the Pound will rebound against the Dollar as the initial fears of Brexit will begin to disappear. This will possibly cause investors to be attracted back to the Pound. However, Bank of America Merrill Lynch has offered the prediction that they believe the Pound will slip further against the Dollar once article 50 is triggered.

Gold price predictions

There are plenty of predictions regarding the Pound which have been positive however these predictions seems to be long term. The Pound is still weak and has been seesawing back and forth. It does not help that Parliament is at a crucial point with trying to get the Brexit bill passed. There is also a lot of uncertainty in Europe with the upcoming elections. Investors are pulling away from the Pound and the Euro and looking for slightly more secure investments. There is still a considerable amount of uncertainty regarding the future of the Pound. As we head into the Brexit negotiations we face more uncertainty. There is a huge possibility that gold prices will rise as article 50 is triggered.

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