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IMF slashes UK growth forecasts

IMF slashes UK growth forecasts

Headline UK consumer inflation data printed slightly stronger than expected with the annual increase at 0.5% for June, from 0.3% previously, while the core rate rose to 1.4% from 1.2%. Furthermore, Producer Price Index prices increased for the second consecutive month. The rise in inflation has been caused by the devaluation of Sterling; imports have become more expensive.

The International Monetary Fund’s 2017 UK growth forecast has revealed that Britain’s decision to leave the EU has resulted in 2016 growth predictions falling by 0.1% to 3.1%. The IMF global growth forecast for 2017 has also been revised down from 3.5% to 3.4%, causing concern for the world economy post-Brexit.The IMF has also pinpointed the EU referendum result as a reason for the stress on the European banking system, hurting Italian and Portuguese banks in particular.

The Euro has strengthened by 0.71% versus the Pound during yesterday’s European trading session. In a day where economic data had little impact on market volatility, the German ZEW survey, a survey of German economic confidence in the next six months, printed at -6.8, a landslide of a fall compared to last month’s 19.2. Any result below 0 indicates pessimism.

There was an underlying tone of optimism surrounding the US outlook yesterday following stronger than expected US housing data. US housing starts rose 4.8% in June, meanwhile building permits rose 1.5% according to the data from the Commerce Department. This caused an overall gain for the Dollar against both the Euro and the Pound, with EURUSD falling below 1.1000 for the first time since the EU referendum.

There will be another volatile day for Sterling today with UK labour market data due for release this morning. The day has started with a cautious tone, with both GBPEUR and GBPUSD opening down at 1.1908 and 1.3080 respectively. German Producer Price Index figures for June will also be released, with expectations at 0.2%.

Data to Watch: 7am EUR German PPI MoM. 9am EUR Current Account. 9.30am GBP Average Earnings Index, GBP Claimant Count, GBP Unemployment Rate.

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