Where to Next for the UK Economy?
08/08/2017 | 11:06 am
The GBP/USD currency pair was trading at 1.3239, up 0.24% or $0.0032 on Wednesday, 2 August 2017. The currency pair has advanced sharply over the past 5 trading days, and is now heading towards the mid-1.30 range against the greenback. Short-term bullishness for the sterling is backed up by a more optimistic outlook on the UK economy’s performance.
For the year to date, the GBP/USD pair has advanced from a low of 1.23 on January 2, 2017 to its current level. This represents a 7.6% appreciation in the value of the GBP over seven months. Conversely, the USD has retreated sharply. The US dollar index is currently trading at 92.79, marginally higher than its 52-week low of 92.55. For the year to date, the US dollar index is down 9.37%, and it has retreated 1.35% over the past 5 days.
United Kingdom Economic Growth
Weiss Finance trading expert Montgomery George Esq. believes that UK economic growth will accelerate in the second half of 2017. A sustained global recovery is driving demand for UK products and services.
‘… In January, February, and March 2017, UK economic growth bottomed out at just 0.2%. By the end of June, UK GDP had risen to 0.3%. I believe that we can expect further gains in performance moving forward. It is possible that the UK economy will grow by as much as 1.7% in 2017, edging higher towards 1.9% by 2018. These gains will occur in spite of Brexit-related concerns dogging the UK economy.’
If the UK economy remains on track, it will likely remain in the upper 1.8% GDP growth rate in 2020 and in 2021. Based on the statistics, UK economic growth rose from Q1 2016 (0.2%) to Q2 2016 (0.6%). It then retreated to 0.5% in Q3 2016, followed by an increase to 0.7% in Q4 2016.
The economy dipped to 0.2% in Q1 2017, and reached 0.3% in Q2 2017. The projections moving forward are largely bullish, albeit at a moderate pace. Consumer expenditure does not feature prominently as the driver of economic growth in the UK – it is exports that are powering the UK economy. Given that the pre-Brexit level of the GBP/USD pair was 1.47, and it is now 1.3239, UK products and services are noticeably cheaper.
Performance of the FTSE 100 Index and Precious Metals
The FTSE 100 index – the UK all-share index – is currently trading at 7,411.43. The year-to-date return on the FTSE 100 index is 3.76%. However, the 1-year return is 15.99%. That is largely the result of a weaker GBP. The inverse correlation between the FTSE 100 index and the sterling is a result of some 70% of listed companies on the index deriving their revenue streams from outside of the UK. When these revenues are repatriated back to the United Kingdom, they are worth more in GBP terms.
The strongest performing stocks midweek on the FTSE 100 index (Wednesday, 3 August 2017) include Old Mutual, ITV PLC, Paddy Power Betfair PLC, Kingfisher PLC, and Babcock International Group PLC. Poorly performing stocks include Standard Chartered PLC, Rolls-Royce Holdings PLC and mining giant Rio Tinto PLC. As far as mining stocks go, the price of silver has remained stable in 2017.
It started trading on the January 2, 2017 at $16.12 per ounce, and is currently trading at $16.69 per ounce. Silver hit a high of $18.54 per ounce on 1 March, and again at $18.60 on 17 April 2017. Gold is currently on the incline too, after having dipped to $1,212.40 per ounce on 7 July. It is currently trading at $1,269.30 per ounce.
Of course, the most important driver of economic performance in the UK economy is interest rates. Following Super Thursday’s meeting on 3 August, the GBP will have more clarity vis-à-vis bullish or bearish sentiment. Heading into Thursday’s meeting, traders were largely expecting the status quo to remain in place. But any move to increase interest rates, now or in the future, will power the GBP and drive the export growth potential of the UK economy.