Brexit uncertainty to weigh on growth; prompts BoE to turn dovish: Angel Commodities Broking

Views by Mr. Prathamesh Mallya (Chief Analyst - Non-Agri Commodities & Currencies, Angel Commodities Broking):

"Bank of England has kept the interest rates unchanged in the August'17 policy meeting and highlighted concerns about the future of Britain's economy post the brexit deal. Companies have already started making low investments since they are clueless about the end deal. Also, the fact that the deal could obstruct Britain's trade access to the EU markets shall reduce UK growth.

Due to this, the BoE policy setting committee has trimmed Britain's growth forecast rate to 1.6 percent from 1.7 percent in 2017 and 1.75 percent from 1.9 percent in 2018 citing brexit uncertainty. The committee feels that the gloomier outlook shall have consequences on monetary policy; reducing the possibility of future rate hikes in 2017. Markets were jolted by this statement which pushed the Pound lower by 0.64 percent (GBPUSD) and 0.53 percent (GBPINR), post the BoE policy event.

With respect to UK's political drama, the recent Brexit deal talk that took place in the last week did not go smoothly. It seems the EU counterpart had asked Britain to pay a divorce bill that ranged between €91bn and €113bn which the latter refused to pay.

From this, it is quite evident that the transition shall not be smooth and there will be hiccups in the negotiation deal. Due to the same reason, the Bank of England has trimmed its forecasts for growth and wages. Keeping all the factors in mind, GBPINR spot is expected to trade lower towards 83.20 levels in the near term."

Source : Equity Bulls

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