Pound’s Troubles Worsen as Spring Budget Looms
The Pound dropped against the Rand on Monday and has continued this deterioration today as concerns about the delivery of Wednesday’s Spring Budget mount.
Recent UK news has actually been relatively positive, with the Organisation for Economic Co-operation and Development (OECD) revising up its UK growth forecasts for 2017. While the initial 1.2% estimate has been bumped up to 1.6%, no real support has been offered due to the tone of accompanying OECD statements.
The group focused on the situation during and after Brexit, stating;
‘UK growth is expected to ease further as rising inflation weighs on real incomes and consumption, and business investment weakens amidst uncertainty about the United Kingdom’s future trading relations with its partners’.
Rand Advances despite Surprise GDP Shortfall
The Rand’s rise against the Pound today is a testament for how low-value the Pound is at present, given that recent South African GDP figures have shown an unexpected drop in Q4.
Although the annual growth rate remained at 0.7% against forecasts of a drop to 0.6%, the quarterly slide from 0.4% to -0.3% has greatly disappointed predictions of a rise to 0.5%.
Commenting on the GDP news was BNP Paribas Securities Economist Jeffrey Schultz;
‘We need to show signs that the economy is turning the corner and that we are actually on the right growth path to improve GDP numbers and that the economy can be labour-absorbing’.
GBP/ZAR Exchange Rate Forecast
This week, further Pound/South African Rand exchange rate movement may occur as a result of Wednesday’s Spring Budget, along with a later UK GDP estimate and trade balance release.
The only remaining major South African news will be Wednesday’s Q1 business confidence score.
For the UK news, if the budget is another austerity-laden round of cuts, then the Pound could depreciate heavily. If, however, Chancellor Philip Hammond is bolstered by the recent OECD news and gives an optimistic outlook, then the Pound may be able to rise against the Rand.
Among the key issues for Hammond to tackle (or avoid) will be a sharp rise in business rates, the uncertainty of Brexit and the increasingly cash-strapped NHS.