Pound New Zealand Dollar Exchange Rate Fluctuates as UK Economy Expected to Shrink
The Pound New Zealand Dollar (GBP/NZD) exchange rate is trading erratically this morning as CBI warns of a ‘lost decade’ amid soaring inflation and low growth.
At time of writing the GBP/NZD exchange rate is trading around $1.9175, relatively unchanged from this morning’s opening levels.
Pound (GBP) Sours on Further Bleak Economic Warnings
The Pound is starting the week on the back foot as the Confederation of Business Industry (CBI) released its latest forecasts. Marking a sharp downgrade from its earlier June forecasts of a 1.0% growth, the CBI expects the UK economy to shrink 0.4% in 2023.
As inflation remains sky high, far above the Bank of England’s (BoE) target rate of 2%, the economic outlook for UK grows darker. Companies are putting investments on hold, and the CBI doesn’t expect GDP to return to pre-Covid levels until mid-2024. CBI Director General Tony Danker, added:
‘Britain is in stagflation – with rocketing inflation, negative growth, falling productivity and business investment. Firms see potential growth opportunities but… headwinds are causing them to pause investing in 2023.’
Meanwhile, unemployment is expected to reach 5% towards the end of next year and predicts inflation will be slow to fall. The CBI’s forecast joins the Organisation for Economic Co-operation and Development’s (OECD) downbeat assessment and expects the UK to be the weakest performing economy in Europe, bar Russia.
Elsewhere, further highlighting the ever-escalating cost-of-living crisis, the consultancy firm Frontier Economics warns of more pubs and breweries to close. Findings for the British Beer and Pub Association (BBPA) paint a dire picture for the hospitality sector. After the end of the government energy support program in April, energy costs are expected to soar, heaping more pressure on the sector. Emma McClarkin, Chief Executive of BBPA, said of the situation:
‘A long-term guarantee that energy costs and contracts will be fair and reasonable come the spring cannot come soon enough for our pubs and brewers.
‘They are planning now for the months ahead and need assurance that bills won’t rocket and completely wipe out profits.’
New Zealand Dollar (NZD) Supported by Positive News from China
Meanwhile, the New Zealand Dollar is benefitting from an improving market mood. Further optimism of China’s economy reopening from its stringent Covid measures.
Shanghai, along with several other major Chinese cities, scrapped PCR testing requirements in entering outdoor public venues. The latest easing of the zero-Covid policy that has hampered the world’s second largest economy, is buoying investors.
Meanwhile, capping any further gains were a third straight month of falling services activity in China. An expected Caixin PMI figure of 47 was met with a worse-than-expected 46.7, another drop for the previous month. The latest data highlights the lingering Covid restrictions, which sparked protests across China.
Pound New Zealand Dollar Forecast: Struggling Retail Sector to Sink Sterling?
Looking ahead to the rest of the day, the Pound New Zealand Dollar exchange rate will be trading on market sentiment amid a lack of data. Focusing on tomorrow, the British Retail Consortium (BRC) will be releasing the retail sales monitor. An expected slowdown in retail sales could weigh on the Pound.
Meanwhile, any further developments from China could weigh on market sentiment, and in turn the New Zealand Dollar.