GBP/CAD Exchange Rate Pressured by Cost-Of-Living Concerns
The Pound Canadian Dollar (GBP/CAD) exchange rate is trending lower today, with the pairing being pressured by concerns the UK’s impending cost-of-living crisis will undermine the country’s economic recovery.
At the time of writing the GBP/CAD exchange rate is trading at around CA$1.7174, down roughly 0.5% from this morning’s opening levels.
Pound (GBP) Plummets amid Impending UK Cost-of-Living Crisis
The Pound (GBP) is on the back foot against the Canadian Dollar (CAD) and the majority of its other peers today, amidst growing concern over the UK’s impending cost-of-living crisis.
With wage growth falling further and further behind surging inflation, and households facing a 50% increase in energy costs this year, analysts are warning the UK’s economic recovery will be undermined by suppressed consumer spending this year
EY Item Club now forecasts the UK economy will grow 4.9% in 2022, down from its previous forecast of 5.6%, as it predicts inflation will skyrocket to 7% by spring.
On the other hand, EY’s analysts predict UK growth in 2021 will have outpaced their initial forecasts, with GDP expected to have risen 7.3%, versus the 6.8% previously predicted
Hywel Ball, EY’s UK chair, commented:
‘The forecast shows that the economy’s bounce back in 2021 was stronger-than-expected and Omicron’s economic impact is likely to be temporary and limited. While the economy and UK businesses may have a softer launch pad for growth this year, they will still benefit from a number of tailwinds in 2022 and 2023.
‘But blowing in the opposite direction will be a squeeze on household spending power which is expected to be a bigger headwind for the economy than the Omicron variant. Inflation is set to reach its highest level in thirty years by the spring and will be well ahead of pay growth.’
Canadian Dollar (CAD) Muted as Oil Prices Retreat from Recent Highs
At the same time, the Canadian Dollar’s gains against the Pound have been capped today amidst a modest pullback in oil prices.
WTI crude climbed as high as $92.70 a barrel at the start of this week’s session, after seven consecutive weeks of gains propelled the commodity its highest levels since 2014.
However, oil prices subsequently fell as a result of some profit taking amidst reports of easing tensions between the US and Iran.
In spite of this most analysts are confident oil prices will soon climb above $100 a barrel, potentially setting the stage for the commodity-sensitive ‘Loonie’ to rise in tandem.
GBP/CAD Forecast: UK Political Jitters to Drag on Sterling
Looking ahead, the Pound Canadian Dollar (GBP/CAD) exchange rate may remain on the defensive through the first half of the week as the absence of any notable GBP economic data is likely to place the focus on UK political developments.
This could see Sterling sentiment sapped by ongoing uncertainty regarding Boris Johnson’s premiership, as the Prime Minister remains under threat of a no-confidence vote as well as the possibility of more damaging revelations.
Meanwhile, the immediate focus for CAD investors will be on Canada’s latest trade figures, with a narrowing of the country’s trade surplus in December potentially acting as a headwind for the ‘Loonie’.