Despite weak GDP numbers, it’s predicted that consumers are set to face another hike during next week’s interest rates announcement, despite the consensus ongoing hikes won’t continue long term.
A spokesperson at Saxo also warns, as a result of the weakened UK economy, the pound is also expected to take another hit, stating, “The pound has fallen against the US Dollar since its July peak and Sterling could look vulnerable to further weakness if there is positive economic news from the US.”
Surprisingly weak state of UK economy means interest rates won’t continue to rise long term – but still 79% chance of increase from 5.25% to 5.5% next week.
The pound has weakened against the dollar and will continue to weaken from its highs this summer and the UK has technically avoided a recession but the economy is under strain.
How will today’s GDP numbers impact interest rates and will they increase again next week?
“The unexpectedly weak GDP numbers mean there’s less chance that the Bank of England continue to increase interest rates. However, interest rate pricing has barely altered the odds for next week and traders are still pricing a 79% chance that interest rates increase from 5.25% to 5.5%.
This indicates the GDP numbers are of little consequence to markets, despite the difference from the consensus. The Government maintains their policy to half inflation this year and that focus is echoed by Hawks (those who wish to keep inflation low) on the monetary policy committee at the Bank of England. If this goal is to be achieved, another interest rate hike seems more than likely.”
Have the GDP numbers and the weakness of the UK economy had any impact on the pound?
“The pound has fallen against the US Dollar since its July peak and Sterling could look vulnerable to further weakness if there is positive economic news from the US.”
What does this mean for stocks and shares – are there any to watch in the context of the UK entering a recession?
“The UK has managed to sidestep a technical recession so far this year, but that doesn’t draw away from the strain that growth is under.
“Saxo has called for a light stagflation scenario across global economies in the coming 2 quarters. With inflation remaining sticky and GDP numbers like todays, this call is proving to show immediate relevance.
“Stagflation environments normally result in poor equity returns, with defensive sectors outperforming. Investors might consider Consumer staples, Energy, Healthcare and Utilities for a stagflation environment.”
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