GBP/USD Weekly Forecast – 27 November

Friday, Nov 24 2017

Events that marked the week:

On Tuesday, from the UK, Public Sector Net Borrowing data was released. Public sector net borrowing (excluding public sector banks) decreased by £4.1 billion to £38.5 billion in the current financial year-to-date (April 2017 to October 2017), compared with the same period in 2016; this is the lowest year-to-date net borrowing since 2007. Public sector net borrowing (excluding public sector banks) increased by £0.5 billion to £8.0 billion in October 2017, compared with October 2016. The Office for Budget Responsibility (OBR) forecast that public sector net borrowing (excluding public sector banks) will be £58.3 billion during the financial year ending March 2018, an increase of £12.5 billion on the outturn net borrowing in the financial year ending March 2017.

Focus of the Wednesday's session was on Autumn Budget Forecast. U.K. Prime Minister Theresa May’s troubled government resigned itself to a deteriorating economic outlook as it committed 3 billion pounds ($4 billion) to prepare for Brexit and tried to make housing more affordable for the young. In delivering his annual budget on Wednesday, Chancellor of the Exchequer Philip Hammond acknowledged official forecasts which showed Brexit already inflicting an economic cost. The Office for Budget Responsibility predicted growth will now undershoot 2 percent every year through 2021 and it halved its estimate for productivity gains over the next five years.

He abolished the tax on home purchases for first-time buyers on all properties up to 300,000 pounds, handed an extra 7.5 billion pounds to the health service and smoothed access to welfare benefits. Each policy represented an attempt to close off lines of attack from the opposition Labour Party still feeling the glow of June’s election which cost May her parliamentary majority. Yet the OBR was quick to point out the flaws in the headline-grabbing stamp duty announcement. Though sold as a popular measure to help aspiring homeowners, it will increase house prices by 0.3 percent” and “the main gainers from the policy are people who already own property.”

From the UK, on Thursday, Second Estimate GDP figures were released. UK gross domestic product (GDP) in volume terms was estimated to have increased by 0.4% between Quarter 2 (Apr to June) and Quarter 3 (July to Sept) 2017, unrevised from the preliminary estimate of GDP. Services remained the strongest contributor to GDP growth in Quarter 3 2017, with the components of the output approach broadly unrevised from the preliminary estimate. The rate of growth in household final consumption expenditure strengthened to 0.6% between Quarter 2 and Quarter 3 2017, with car purchases recovering somewhat from a low Quarter 2. Business investment growth softened to 0.2% between Quarter 2 and Quarter 3 2017. GDP per head was estimated to have increased by 0.3% between Quarter 2 and Quarter 3 2017.

This week markets will be looking at:

Net Lending to Individuals (Wednesday 10:30)

Manufacturing PMI (Friday 10:30)

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