Pound slides as Britain faces two ‘lost decades’ of earnings growth

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Having weathered the storm of the Autumn Budget and reduced forecasts for economic growth on Wednesday, Pound Sterling (GBP) exchange rates suffered broad losses yesterday amid further economic warnings.

A downbeat report from the Institute of Fiscal Studies (IFS) suggested that Britain was facing two ‘lost decades’ of earnings growth and that UK national debt would not return to pre-financial crash levels until ‘well past the 2060s’. The IFS also mentioned that GDP would be 3.5%, or £65 billion, weaker in 2021 than was forecast two years ago. The sobering figures appeared to weigh on demand for the Pound, as analysts concluded that subdued economic activity and depressed real wage growth would most likely persuade the Bank of England to maintain a cautious approach to monetary policy in the medium-term.

The Pound’s fortunes during today’s session will likely depend on the success of UK Prime Minister Theresa May’s visit to Brussels. If the PM makes an improved Brexit offer and it is well received then Sterling could rally, if progress appears unlikely then GBP could be hit.

Pound to Euro (GBP/EUR) Exchange Rate Down -50 Pips but Dovish ECB Could Hold Single Currency Back

The Pound to Euro (GBP/EUR) exchange rate tumbled by around half a cent yesterday as predictions of economic strife appeared to sour investor sentiment towards Sterling.

Across the Channel, the single currency was boosted by news that private sector output accelerated at the start of November. The latest PMI showed that both services and manufacturing activity increased, driving the composite Eurozone index up unexpectedly from 56.0 to 57.5.

‘Patience, persistence and prudence’ – that’s what policymakers need, according to the latest minutes from the European Central Bank. The ECB communiqué conveyed optimism regarding the region’s growth outlook. However, the outlook for inflation was a little less rosy, suggesting that a ‘substantial degree of monetary policy accommodation’ was likely needed for the foreseeable future. The ECB’s dovish outlook could continue to constrain the Euro over the coming weeks and months.

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