UK Corporates Brace For Weaker Sterling, Slower Economic Growth

Market volatility and uncertainties linked to Brexit seem to have hit corporate spending in the U.K. harder than expected, reports in Reuters said Friday (April 27), as the sterling hit a two-month low against the U.S. dollar.

Hopes for the Bank of England to raise interest rates have been dashed after new data showed weaker economic growth for the country, reports said. The nation’s GDP grew at its slowest pace since Q4 2012, according to the Office for National Statistics — a worse outcome than had been expected for the first quarter of the year. The Bank of England is meeting next week to discuss a possible rate hike, which would be only its second since the 2008 financial crisis, Reuters said.

“This pushes the hike back to August at the earliest, and more likely November,” predicted OFX currencies analyst Jake Trask. “Sterling will be subdued for a while below the $1.40 level.”

Some analysts told reporters a rate hike could be delayed until 2019.

According to the publication, market expectations for a rate hike were more than halved on Friday at 20 percent, from about 50 percent before the GDP data was released. The pound slumped to $1.3748 against the dollar following the news.

The publication pointed to weaker-than-expected corporate and consumer spending likely linked to high inflation and Brexit uncertainty. Poor weather earlier this year had an impact, too, analysts said — but FEXCO Corporate Payments head of dealing David Lamb told Reuters that this cannot take all the blame.

“No amount of squabbling over how much of a factor the extreme weather was can mask one blunt truth: Britain’s economy is slowing badly,” he said.

Weakened economic growth, suppressed corporate spending and a weaker pound are more bad news following data from Western Union published last month that found foreign exchange fluctuation is hitting companies in Britain hard. U.K.-based importers averaged profit decreases of 12 percent since the EU referendum, the report found, with analysts attributing that drop directly to FX volatility and the depreciation of the sterling.

A weakened sterling is also contributing to higher costs for U.K. importers, with 41 percent of businesses surveyed saying the currency’s value drop has made cross-border trade more expensive.