The Paris-based OECD (Organization for Economic Cooperation and Development) revised up its U.K. growth forecasts, now predicting a 2 percent expansion for 2016, compared to 1.8 percent forecast earlier this year. The prediction for 2017 was lifted to 1.2 percent from 1 percent. The OECD stated that the revision was a result of both the Bank of England’s action, and the depreciation in Sterling since the Brexit vote. Although the growth forecasts are up 0.2% on the previous forecasts, the 2017 projection continues to represent a sharp slowdown.
The OECD predicts that inflation will pick up to 2.4 percent in 2017, and almost 3 percent in 2018. The report mentioned that an inflation-induced dip in consumer spending, together with lower investment are likely to drive the UK slowdown, and that these threats could prove to be worse than expected. It sees uncertainty weighing on growth and investment, higher inflation weakening consumer spending and unemployment rising.
"With a weak economic outlook, further raises in the minimum wage should be considered prudently," the report says, following Phillip Hammond’s announcement last week of an increase in minimum wage from April 2017.
The Dollar weakened against a basket of major currencies yesterday, losing some gains after a sharp rally that has followed Donald Trump's surprise victory in the U.S. presidential election.
Markets are expecting a Trump administration to bring an expansion of fiscal policy, boosting inflation and pushing up interest rates.
Most analysts have said that the dip in the dollar since Friday has been simply a corrective pullback, and the greenback is still on track for its strongest two-month gain since early 2015.
Oil prices bounced back in volatile trading, having fallen as much as 2 percent as the market reacted to the news that major producers could hopefully agree output cuts at a meeting on Wednesday.
However, some analysts have suggested that the Dollar's drop, particularly against the Japanese yen, was the result of President-elect Trump’s tweets over the weekend. Trump has alleged that "illegal" votes were responsible for his loss in the popular vote to Hillary Clinton, and condemned Clinton’s support to the votes recount efforts by Green Party nominee Jill Stein for Wisconsin, Michigan and Pennsylvania. He has accused Hillary Clinton of reneging on her concession speech certifying the results of the Nov presidential election.
The Euro gained against the Dollar, boosted by the election of Francois Fillon as the center-right candidate in next year's French presidential elections. The reformist former Prime Minister is now seen as the favourite to become President, with a poll showing that he would easily beat National Front leader Marine Le Pen in a run-off second round.
In a speech yesterday, ECB President Mario Draghi highlighted the adverse effects of global economic and political uncertainty to the Eurozone. However, he argued that the Eurozone’s economy has proved to be resilient in 2016, despite uncertainty stemming from the economic and political environment.
He was less positive about the global economy as a whole, arguing that it is expected to continue its recovery, but that growth will remain slower than before the global financial crisis. “While showing signs of resilience, the global economy is facing significant political and economic uncertainties,” he said.
13:30 – USD : Preliminary GDP q/q, expected to remain unchanged at 1.5%
15:00 – USD : CB Consumer Confidence, expected at 101.3 against a previous of 98.6