Forex Trading: Brexit Aftermath Still Impacting Currencies
In the last year, there have not been many events that have impacted financial markets more than the decision in Great Britain to leave the European Union. Brexit shook the whole of Europe and even the world. As predicted, it will continue to have consequences on the British economy and the monetary policy direction at the Bank of England. At the moment, central bankers are dealing with these factors. But experts fear it could have a large impact in upcoming years, saying the ripple effects have just begun.
Britain’s Labor Markets
One of the first segments of the economy that has been hit is pay growth within the region. The Bank of England’s survey agents have predicted that the average pay growth of 2.7% in 2016 will slow down to 2.2% in 2017. These trends will be accompanied by inflation levels that will jump up to 2.7% over the period.
Although the BoE voted to keep interest rates steady at 0.25%, Kristin Forbes as the external member of the Bank of England’s Monetary Policy Committee says she is on the verge of voting yes for interest rates to increase, due to good results in the economy and relatively stable growth.
Another segment that was hit by the Brexit event is the Pound Sterling (GBP). Due to the market changes seen after Brexit, the British Pound dropped significantly and peripheral assets have been scaring investors away because of the instability of the valuations. Massive trading opportunities were seen during these declines but it is always important to utilize the market’s best forex broker in order to ensure against slippage in your positions.
During a press conference regarding the interest rates policy, Bank of England Governor Mark Carney stated that even though Great Britain’s economic growth has been largely positive, the effects of Brexit have not yet been avoided, rather delayed.
The BoE has published an article regarding the inflation rate and Brexit effects. In November of 2016, the growth projections were 1.4%, but recently they stated it will likely rise to 2%. Households, however, will continue to feel the effects of the economic belt getting tighter and this could extend into other areas of the economy. Also in November 2016, predictions for the inflation rate were 2.7% until the end of 2017 (which is a three-year high for Britain).
Short-term inflation in the next 12 months was predicted in January to be at 2.6%, the highest level since December 2013. The long-term inflation numbers, though, stayed unchanged at 3% for the next five to ten years. As the MPC stated, they are planning to let inflation grow more than the planned 2% a bit longer than the usual 18-24 month period in order to support employment and growth.
One more piece of information about the Pound Sterling. Its trade-weighted value has gone up by 6% since the Bank’s November 3rd Inflation Report, which also indicated that inflation will rise above 2% in 2017. This is just the start of a rough road ahead as Great Britain will likely continue to experience the after-effects due to the Brexit, but we will see how the Bank of England will handle these issues in the future.