Pound Slips Back After Stabilising

The UK pound has started the week sliding down against the US dollar, after sterling spent most of last week solidifying itself after ‘Brexit‘, as the appointment of Theresa May as the new British prime minister boosted the pound, after the hammering that is has taken post the decision to leave the European Union.

This morning GMT, the GBP/USD rate is $1.3233, down from the end of last week’s peak of just over $1.34, in comparison to the euro the pound has also fallen, as GBP/EUR has dropped down to 1.1974 euros from 1.21 euros last week.

In their daily report, LMAX Exchange said that the pound has done well mounting a decent recovery out from over 30 year lows it has suffered, with an overall well bid US equity market, and the recent surprise of the Bank of England (BOE) holding interest rates, both helped to fuel the pound gains.

Although the forex company warned that with the BOE flagging a rate cut, and maybe more in August, and with US retail sales coming in very healthy, hinting at the possibility for a sooner rate hike by the Federal Reserve, there has been plenty of interest to sell the UK currency into rallies.

EY Item Club Predict Brexit Downturn

EY Item Club, a global professional services organisation that is affiliated to Ernst and Young, have predicted a gloomy outlook for the British economy for this year, revising the GDP forecast down to 1.9% from the 2.3% originally estimated.

A more damning figure was calculated for next year, with growth falling by a rapid rate to 0.4% from 2.6%, then rising to 1.4% in 2018, EY Item Club said that the rise in uncertainty will hold back consumer spending and business investment, resulting in a rise in unemployment.

Its also anticipated that business investment is expected to see a larger relative hit, falling by 0.9% in 2016 and by 2% in 2017, down from April’s forecast of growth of 3.2% and 7.8% respectively.

However, they believe that the falling pound will provide a silver lining to cushion the UK economy from some of the adverse effects of ‘Brexit’, as this will help exporters trade their goods.

The longer term outlook EY Item Club believe, is that the economy will be determined both by domestic policies in areas like regulation, and by the UK’s ability to secure trade deals with the EU and other markets.

The forecast assumes that post 2019, the UK will be able to negotiate a free trade agreement with the EU similar to the recent EU-Canada deal, which would result in trade between the UK and the EU still being free of tariffs.

Italian Foreign Trade and Import Prices Take a Hit

Official figures for May compared to April, revealed that trade prices decreased by 0.2% for outgoing flows and by 1.2% for incoming flows, in total exports grew by 2.1% for EU countries and fell by 3% for non EU countries.

Imports decreased for both EU and non EU countries by minus 1.3% and 1.2% respectively, between March-May, in comparison with the previous quarter, trade increased by 1.3% for exports and by 0.2% for imports.

The Italian government is thought to be frantically working on a 50 billion euro bank bailout, to help out stricken lenders in the country.