The pound fell across the board yesterday morning after the publication of a report from the British Chambers of Commerce (BCC) that it has cut its UK growth forecasts for both this year and next. The BCC said the UK economy would grow by just 1.1% in 2011, down from its previous forecast of 1.3%. This is the third time it has downgraded its outlook for this year, which began at 1.9% in January. It also expects 2012 GDP growth to reach 2.1%, down from 2.2%.
David Frost, director general of the BCC, said the challenges faced by the UK economy were more difficult than first thought at the beginning of the year and called on the government to do more to help businesses.
The BCC also predicted that if weak economic growth continued the Bank of England would consider increasing its quantitative easing programme from £200 billion to £250 billion.
In a further sign of the continuing difficulties facing the UK economy, the Nationwide reported that UK house prices fell by 0.6% on month (-0.4% on year) in August. Consensus estimates were for an unchanged reading when compared to last month.
A report showing that UK consumer confidence has fallen to its lowest level in four months in August did little to brighten the outlook for the UK economy.
In contrast, the US dollar pushed ahead on Wednesday as investors cheered upbeat US business sentiment and factory orders data.
US factory orders increased by 2.4% in July to $453.2 billion from the previous month according to data from the Commerce Department. The Chicago PMI, a measure of Chicago business sentiment, fell to 56.5% in August from 58.8% in July but still came in better than predictions of a 53% reading.
The Swiss franc rallied over 2% against the dollar and the euro as expectations that the Swiss National Bank will intervene on its currency’s strength fades.
in a positive sign for the world economy, manufacturing activity in China has expanded for the first time in five months. This helped risk sentiment and improved the outlook for the high yielding currencies like the Australian and New Zealand dollars and South African Rand which all made substantial gains against the pound.
Commentary by Tony Redondo
“Any opinions expressed in this document are those of TorFX analysts. Any analysis and/or forecasts provided are aimed at helping clients understand market conditions and developing trends. Clients are wholly responsible for their own trading decisions.”
