Sterling exchange rates have opened the week relatively flat, with the major economic headlines surrounding the upcoming MP’s debate on the issue this week.
Last week the government faced a blow when they suffered defeat on the EU Withdrawal Bill in the House of Lords, when they lost a vote in favour of leaving the EU’s customs union with even some members of May’s own cabinet voting against the plan.
Over the weekend a number of key figures have made comments in favour of sticking to the plan of leaving, and this week there will be a debate on the issue on Thursday.
A customs union is when the countries involved agree to apply the same taxes on imports to goods from outside the union. This way when goods have cleared customs in one country they can be shipped to others in the union without further tariffs needing to be applied.
If the UK remains part of the EU’s custom union, it won’t be able to strike deals with countries around the world. One of the reasons the current governments opponents wish for the UK to remain in the EU’s custom union is so that the border between the UK and Ireland in Northern Ireland can remain open. This topic is one that the government is yet to address so I expect to see the issue continue to put pressure on the Pound’s value should it continue to be a sticking point.
The debate and vote towards the end of the week isn’t binding, but I do expect it to have an impact on the Pound’s value especially if talks don’t go in favour of May’s government.
Four interest rate hikes from the BoE over the next 18-months?
Over the weekend a forecasting body by the name of the EY Item Club has predicted that despite the UK economy being quite sluggish the BoE is likely to hike rates twice this year and then another two-times in 2019. They’re putting their predictions downs to a strong jobs market along with strengthening earnings, which are now picking up with the inflation levels.
The forecaster also predicted growth of 1.6% this year and growth of 1.7% in 2019. Rates currently stand at 0.5% and many analysts expect the next hike to be a 0.25% rate hike up to 0.75% which would be the highest the UK has seen since exiting the recession almost a decade ago.