Expert Commentary: Focus on UK economy and GBP

by Dukascopy

Analysts warned that UK's economy will most likely downgrade this year. In your opinion, how long will it take for the UK economy to stabilise?

I would suggest that it depends on exactly what we mean by stabilise; in my opinion, growth is rather to be stable for the next few quarters, but it will still hold at a relatively low level. If we look at the GDP growth in the second quarter, it was 0.3%, slightly higher than in the first quarter. My current view is that the GDP will probably hold at the same level during the H2 of this year and in 2018 as well. Growth will be relatively stable, but again, stable at a relatively low level.
If you ask me when do we think that growth will be turned to a certain trend rate of growth, which is probably closer to 0.5% a quarter, then we do not think that this is likely to happen anytime soon; maybe in the H2 of 2018 at the earliest.

Economists anticipate the Sterling to stay low for the time being. What will be the main factors which could hit the British Pound in the short term?

Obviously, the Brexit speculation will have an impact on the Pound. The second thing we need to point out is monetary policy and expectations of rate hikes both in the UK and US. We expect the US rates to move up. Another factor could be the speculation about the ECB policy being on the turn. On the domestic front, we think that the monetary policy is going to remain on hold for now; however, as the outlook for the policy still remains rather uncertain, I think we could see an unexpected rise in interest rates.

What are your short- and long-term forecasts for GBP/EUR and GBP/USD?

In the short term, we see the GBP/EUR currency pair trading at 1.14. To be honest, we anticipate the pair to hold at that level for the next 12 months. Against the American Dollar, our forecast is 1.30 in the short term and 1.34 for the next year.





Rhys Herbert 

Senior Economist at Lloyds Bank,


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