Pound to Australian Dollar forecast: UK economy shrinks four times more than predicted

Pound to Australian Dollar forecast amidst Brexit and political uncertainty

UK economy shrinks

The Australian dollar (AUD) held steady against the pound (GBP) as Monday dawned, with markets closed for the day Down Under in celebration of the Queen’s Birthday. On Tuesday, the economy was boosted by news that Australian Business Confidence had surged from 0 to 7 in May, following Prime Minister Scott Morrison’s shock election win.
The pound, however, had to contend with news that the UK economy had shrunk 0.4 per cent in April – four times more than analysts had forecast – as Brexit paralysis took hold. And it didn’t have long to recover after it was revealed industrial production and manufacturing declined by 2.7 per cent and 3.9 per cent – the sharpest drop since June 2002 – respectively in April.
Markets had forecast a disappointing monthly growth reading – around 0.1% – but not by such a large margin. So, instead of holding firm – as many investors had predicted prior to the release – the pound weakened and the GBP to AUD rate dipped below the 1.82 level.

Campaigning begins

Any hopes that prolonged Brexit uncertainties and a fraught UK political situation will ease any time soon rest heavily on the Conservative Party leadership contest. The starting gun to this potentially protracted race officially fired on Friday, when Theresa May formally stood down as party leader. And it wasn’t long before the final ten candidates – who were confirmed after nominations closed on Monday – began outlining their plans should they be successful in succeeding Mrs May in Downing Street.
With the contest now in full swing, Tory MPs will spend the next two weeks partaking in a series of votes to whittle the pack down to the final two. Before the party membership – of which there is around 160,000 – chooses the winner in a postal ballot, with the result announced in the penultimate week of July.
It’s the leading candidates Brexit stance that will hold the most sway over the performance of the pound as the race hots up. Delivering the UK’s departure from the EU will be top of the next prime ministers to do list, and victory for a no-deal advocate could cause the pound – and GBP to AUD pair – to nosedive in value. For example, bookies favourite, Boris Johnson has said the UK will leave on 31st October “deal or no deal”.

Looking ahead

The first full day of official campaigning will see other candidates launch their bid for the hot seat, ahead of the first round of voting on Thursday – the subsequent votes will be held on 18th, 19th and 20th June.
The Office for National Statistics delivers two significant readings today that are likely to impact pound to Australian dollar rate: The Average Earning Excluding Bonus figures and the ILO Unemployment Rate.

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