Falling Pound Drives FTSE Higher

The latest data shows that the UK’s economy is growing at its slowest pace in four years. The Office for National Statistics reports that the UK economy has grown by just 1.5 percent over the year leading up to the end of June, compared to the previous year’s 1.8 percent, and predictions of 1.7 percent. This news has sent the pound tumbling - down 0.7 percent against the dollar and 0.8 percent against the euro.

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shareprices.com - Saturday, September 30, 2017

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The ONS reported a large increase in the current account deficit - up to £23.2 billion for the three months leading up to the end of June, which was a significant increase compared to the previous £16.9 billion estimate.

Prior to the release of these figures, the Bank of England governor Mark Carney had stated that an interest rate increase would be on the cards of the economy had continued on the path that it was on. Investors had priced in a 75% chance of a rate increase in November, but the new figures are causing investors to question the likelihood of such a rate hike.

Historically, it would be unprecedented for the central bank to tighten their policies while the data points to such weak economic growth. However, policymakers are fuelling expectations that interest rates should rise soon even though from a historical standpoint it would be unusual for monetary policies to tighten during a time when economic growth has been proving to be so weak. The uncertainty leading up to November will likely dominate the markets.

 

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