The bleak future of UK interest rates and the state of the UK housing market have been weighing heavily on Pound Sterling today. The British asset is trading negatively against all the major currencies apart from the Czech Republic Koruna (CZK), and the Russian Ruble (RUB).
BoE Governor Pushes GBP into a Tumble with Dovish Assessment of Global Economy
Pound Sterling exchange rates are still suffering from weakness caused by a speech by Bank of England (BoE) Governor Mark Carney on Tuesday. Citing weak economic conditions at home and the worsening global outlook, the Governor claimed that the current environment cannot sustain interest rate hikes. He also noted that in the US, where the expansion cycle is two years ahead of the UK, interest rates have only just been increased to 0.50%: the same level UK rates have been on hold at for seven years.
According to Carney, ‘Increased vigilance is merited given the softness in nominal GDP growth, the still-elevated levels of household debt relative to income, the large current account deficit and pockets of more buoyant activity in areas such as Buy-to-Let mortgages, unsecured consumer credit and commercial real estate.’
Buy-to-Let Demand Stokes UK Property Price Concerns
In more bad news for the Pound, house prices are set to keep increasing. That’s according to a survey by the Royal Institute of Chartered Surveyors (RICS), which found that a net 50% of respondents believe house prices are on the rise. Prices in the UK rose by 7.7% in the 12 months to October 2015, while the east of England saw prices shoot up 10.2%. According to the Halifax, house prices rose at the fastest rate since 2006. Demand for property hit a three-month high following the announcement that George Osborne would raise real estate purchase taxes by 3% for buy-to-let (BTL) investors.
According to RICS Chief Economist Simon Rubinsohn, ‘Those in the industry have been speculating that this is the result of the Chancellor’s announcement last November. Potential buy-to-let investors are looking to pick up properties before the increased stamp duty levy comes into force next April. If that is the case, then we can expect to see the housing market heating up further over the next few months.’
The leap in demand and further increase in prices has increased fears that the UK is entering a housing bubble.
Pound Sterling (GBP) Exchange Rate Forecast: Public Sector Borrowing Data on Tap
The UK Public Sector borrowing figures are due out tomorrow and will show the progress that Chancellor George Osborne has made towards his goal of cutting the deficit. His aim of reducing total borrowing to £69.5 billion has already been quashed, with the last round of figures showing that he was just shy of that figure with three months of the year left to go. Today’s figures will show whether he is on track to meet the projected £10 billion overshoot, or if the state of UK finances have required even more additional borrowing.
The Pound Sterling to Euro (GBP/EUR) is currently trading in the region of 1.3047, while the Pound to US Dollar (GBP/USD) exchange rate is currently trending around 1.4116.