ZURICH: One of Switzerland’s oldest private banks, J Safra Sarasin, warns clients to expect a notable depreciation in the value fo the Pound-to-Euro exchange rate in 2018 and 2019.
J Safra Sarasin’s Global Economist Adolfo Laurenti says he expects UK economic growth to decelerate in 2018 due in part to persistently high inflation which will reduce real take-home pay and lower consumption. This is in turn expected to lead the Pound back to multi-year lows against the Euro.
Decline in UK economic activity will however be limited by the ongoing improvement in the UK’s manufacturing sector which is expected to expand further, partly due to a the Pound’s decline in the wake of the EU referendum which has made British exports more affordable and competitive overseas.
Nevertheless, “our latest forecasts show the British economy to decelerate from 1.5% GDP growth in 2017 to 1.3% in 2018 and 1.2% in 2019,” says Laurenti.
Falling growth will deter the Bank of England from increasing interest rates despite their remit to combat high inflation.
They will be too worried about higher interest rates making debt and mortgage repayments increasingly unaffordable as real incomes are eroded by higher inflation.
At present markets are forecasting the Bank to make two additional interest rate rises at some point in the next two years, taking the UK’s base interest rate to 1.0%. If expectations for a third are added, the Pound would be expected to rise, if expectations are reduced, the Pound would be expected to fall.
