The Bank of England forecasts 7.25 percent growth for the UK economy this year. For a limited time, UK inflation is expected to reach 3%. The UK economy appears to be in good shape, with growth rising up significantly in the latest quarter. The recovery in economic activity is’most obvious’ in the consumer-facing services sector after Covid restrictions were eased in April, according to the latest Bank of England (BoE) report, with output in some sectors ‘near pre-Covid levels’. The Bank of England expects the UK economy to grow by 7.25 percent this year, owing to the success of the vaccination program and the ongoing unwinding of lockdown measures, while the Confederation of British Industry (CBI) is more optimistic, forecasting 8.2 percent growth this year and 6.1 percent growth next year. When the government’s furlough program expires at the end of September, this positive backdrop may be challenged. The Office for National Statistics (ONS) recently reported that the percentage of workers on furlough has decreased from 20% in late January to 7% in late May, however 1.5 million people remain on the scheme. If the government wants to restore unemployment back to pre-covid levels, the end of Q3 will be critical. Inflation in the United Kingdom is also rising, with annual inflation topping 2.1 percent in May, much beyond the Bank of England’s objective. For a limited time, the Bank of England anticipates inflation to exceed 3%, owing to rising energy and commodity prices. The market has been anticipating UK interest rate hikes as a result of this prognosis, however if recent developments in the US are any indication, the BoE will wait until hard data makes it tough to resist. With the Bank of England becoming more data-dependent, UK data releases will become significantly more crucial in any trading arrangement. While most official data is backward-looking, any changes in monetary policy will be justified by the confirmation or not of a trend in growth, employment, or inflation. The Bank of England will focus on inflation in the coming months, and while they currently perceive the overshoot as temporary, they must be careful not to paint themselves into a hole if pricing pressures grow increasingly tenacious. We have been cautiously bullish about Sterling in the past two quarterly reports and continue to be so, while we recognize that the best performing quarters may be behind us. As prospects of tighter monetary policy in the United States develop, the British Pound may struggle to move appreciably higher against the US dollar. Sterling may have a higher chance of appreciating versus other currencies, particularly those belonging to nations whose monetary policy is projected to remain loose. Traders looking for bullish Sterling trades should choose GBP/JPY or EUR/GBP, while GBP/CHF is expected to break out of its recent trading range soon.” Download our free Q3 trading guide from the DailyFX Free Trading Guides to discover the full British Pound forecast, including the technical outlook.” Traders of all levels and talents will find something useful in the new and enhanced DailyFX Trading Education Centre to help them make better decisions. Bullish or bearish on the British Pound, in your opinion? You can contact the author on Twitter @nickcawley1 or by the form at the bottom of this article./n
Read More
