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The National Institute of Economic and Social Research lowered the growth prospects of the United Kingdom in its latest report released today. I said that after growing 0.6 percent in the last quarter, the UK economy slowed a little in the first three months of this year and grew by 0.5 percent. “We estimate growth slowed slightly in the first quarter of 2017 to 0.5 percent. A key component of this moderation has been relatively weak retail sales in the first two months of this year. Consumption is expected to moderate further this year as increasing inflation erodes households’ purchasing power. We expect the Bank of England to look through this temporary shock to inflation and for monetary policy to remain accommodative.”
The pound has declined after the report and currently trading at 1.244 against the dollar. A weaker dollar could provide some support to the pound but the currency remains vulnerable to Brexit blows. We expect the pound to decline further in the near term, possibly towards 1.17 area. Unless the currency clears key resistance around 1.28 against the dollar, the prospect of further upside is limited.
