Despite autumn setting in, there was some positive news for the UK from the Office for National Statistics (ONS) in terms of the public sector borrowing numbers. The ONS chief economist stated that ‘the referendum result appears, so far, not to have had a major effect’. The ONS went on to say that ‘it hasn’t fallen at the first fence but longer-term effects remain to be seen’. The Bank of England (BoE) appears to agree, as it has signalled the potential for an additional rate cut. Sentiment will continue to fluctuate and be driven by two key factors: economic data, and the outlook from the eventual triggering of Article 50.
UK public sector borrowing numbers were positive and rose less-than-expected in the last quarter, official data showed on Wednesday. However, other recent data has been less than favourable, something that the Organization for Economic Cooperation and Development (OCED) has recognised. The OCED published its latest global projections which included a massive downgrade to UK growth in 2017. It has halved its growth forecast to 1%, half the projected rate in June (which was based on the Remain campaign triumphing). A Bloomberg survey revealed that participants expect interest rates to be cut to zero before the end of the year, with growth being at the worst since the recession in 2009.
Whilst sterling is not seeing the sharp declines we saw earlier in the year, it is certainly under pressure. The market will keep a close eye on BoE Governor Mark Carney, who is due to speak in Berlin. Any comments surrounding a potential rate cut will be heavily scrutinised.