Source: ForexYard
According to the International Monetary Fund (IMF), Britain’s economy is set to slump by a massive 2.8% this year. The global economic watchdog was extremely concerned, as this forecast indicates that Britain’s economy will decline twice as fast as previously predicted. Therefore, Britain’s economy is set to shrink more than that of the Euro-Zone, the United States and Japan. This data is likely to kick-in when the Bank of England (BoE) meets next week and cuts Britain’s Interest rates. The consequence of this is highly likely to lead to a further weakening of the Pound Sterling.
The IMF data has sparked worries across the financial world, as London is seen as 1 of the top 3 global financial capitals, along with New York and Frankfurt. The Pound may therefore weaken as the financial crisis continues to take its toll on the British economy. It is true that every advanced country in the world is suffering from the global economic downturn. However, Britain has been hit severely largely due to her previously strong banking and energy sector.
Since the commencement of the global financial crisis, banks around the world and Oil prices have been hit significantly. For example, the British government increased its stake in the Royal Bank of Scotland (RBS) last week, which sparked renewed fears of the nationalization of Britain’s banking sector. Additionally, the price of Crude Oil has slid from as high as $147 a barrel back in July, to $41 today. Britain has felt the brunt of the global recession more than any other country in the developed world, owing to its dependence on these 2 sectors. Also, the Pound sterling has felt the knock-on effects, as the British currency has tumbled against the Dollar and Euro in recent months.
A couple of months ago, the Pound against the Euro and Dollar stood at €1.53 and $2.11 respectively. However, the GBP’s rate vs. these 2 currencies currently stands at €1.078 and $1.43. The British government and the Bank of England (BoE) have run out of things to do to stimulate Britain’s economy. Things have gotten so bad in Britain that the opposition Conservative Party has opened a double-digit lead in most polls. In the short-medium term, the Pound is likely to decline against most of its major currency pairs. If you want to learn more about the current global economic situation and the forex market, you can start trading with our standard account, please visit ForexYard.
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