Pound Sterling Recovers as NIESR Predict 0.6% Q4 Growth for 2015
According to the National Institute of Economic and Social Research (NIESR), the UK economy grew by 0.6% in the final quarter of 2015. The think-tank has not revised its figure following a slew of poor data released yesterday, which means that UK GDP will have increased by 2.2% if the prediction is correct.
RBS Warns Clients to Sell as China Troubles will ‘Snowball’
According to the credit team at RBS, markets are showing severe signals of stress, similar to those experienced before the financial crisis of 2008. RBS recently advised its clients to ‘sell everything except high quality bonds’, warning that European and Wall Street stocks could fall by as much as -20%, while oil could dive to $16 per barrel. According to RBS, the London stock market is particularly vulnerable.
A strategist at Société Générale has expressed similar sentiments, adding that another financial crash could destabilise the Eurozone to the point of collapse. Albert Edwards warned that the US economy could be pushed back into global recession and trigger another crisis similar to that experienced across the world in 2008.
The UK and India have both posted disappointing production figures, although investors are more concerned about the UK economy, as evidenced by the -1.1% slump in the GBP/INR exchange rate today.
Pound Sterling to Indian Rupee (GBP/INR) Exchange Rate Falls Along With UK Rebound Hopes
The chances that the UK economy made a strong recovery towards the end of 2015 have been severely damaged today by figures from November and December which show that many areas of the economy performed poorly. Retail sales for Q4 2015 posted their weakest growth in five quarters, growing just 0.1% year-on-year (YoY), failing to meet expectations of a 0.5% rise. Industrial Production experienced the steepest fall since January 2013, with a -0.7% month-on-month (MoM) drop resulting in YoY growth slumping from 1.7% to 0.9%. The UK manufacturing sector decline accelerated to -1.2% from -0.2%.
The data makes it unlikely that the UK economy will have ended 2015 with a strong expansion. The Office for National Statistics had previously stated that industrial production would have had to increase by 0.5% MoM in December in order to stop the sector dragging on UK economic growth. The news all but destroys any chance the Bank of England (BoE) will raise interest rates in the near future. J.P. Morgan now expect the first rate hike to come towards the end of 2016.
J.P. Morgan economist Malcolm Barr explained that the ‘report is the straw that breaks the camel’s back,’ adding that, ‘Recent disappointment in the pay data and the drop in oil prices had already put our call for the MPC [Monetary Policy Committee] to raise rates in May at risk.’
The GBP/INR exchange rate is currently trading around a nine-and-a-half-month low of 96.1680.
Indian Rupee to Pound Sterling (INR/GBP) Exchange Rate Shrugs Off Indian Production Slump
Like the UK, India’s production figures released today during the London session haven’t performed well. Figures from October showed that India enjoyed the kind of growth the UK would probably like to have in order to balance the economy, with Industrial Production rising 9.89% YoY and Manufacturing Production increasing 10.6%. Forecasts predicted that those figures represented a spike in growth, but today’s figures have dropped much further than anticipated, with both industrial and manufacturing output plunging into negative territory. Industrial Production tumbled past the 2.80% forecast to sink to -3.2%, while Manufacturing dived past 2.2% to -4.4%.
The Indian Rupee has managed to hold its ground against several of the majors today, however, as it demonstrates a surprising resilience to the turmoil caused by fears over the Chinese economy.
The INR/GBP exchange rate is currently trending between 0.0103 and 0.0104.
Pound Sterling to Indian Rupee (GBP/INR) Exchange Rate Forecast: Bank of England Rate Decision in Focus
Investors will be looking to the minutes of the next Monetary Policy Committee (MPC) meeting, scheduled for Thursday, to show the attitude of the Bank of England towards interest rate hikes. It was already highly unlikely, even before today’s poor data, that the MPC would vote to raise interest rates, but the minutes may give an indication of their plans. Indian inflation data is also due out on Thursday.
The GBP/INR exchange rate is currently trading between 96.0980 and 97.3130.