The GBP AUD exchange rate was higher by 0.10% on Wednesday despite a downgrade of the UK economy by the OECD. The OECD also cut growth for the global economy and that is weighing on the Aussie dollar. The larger than expected RBA interest rate hike is also set to hurt Aussie consumers further.
The GBP to AUD rate was trading at the 1.7425 level but the rebound has been weak.
British economic growth downgraded by the OECD
The British economy will grow by less than expected in 2022, before slowing to a halt next year, according to the OECD.
The Organisation for Economic Co-operation and Development said global growth is declining due to the war in Ukraine. The group said that UK GDP will grow by 3.6% in 2022 after saying six months ago that it would be 4.75% higher.
Worker shortages and supply chain issues have aligned with higher energy prices and that is expected to drive inflation to more than 10% this year. It is expected to decline to 4.7% by the end of next year, but predictions have been unreliable. Unemployment is expected to remain pressured by high vacancy rates and worker shortages in some sectors.
But the OECD revisions also hurt the Aussie dollar with the group downgrading China and global growth.
“When coupled with China’s zero-Covid policy, the war has set the global economy on a course of slower growth and rising inflation – a situation not seen since the 1970s,” the group said.
Reserve bank rates to be 2.1 by year-end says National Australia Bank
Economists at National Australia Bank have predicted that interest rates in Australia will rise to 2.1 per cent by the end of 2022 after the Reserve Bank of Australia hiked rates by 50 basis points.
The largest rate hike in 20 years has shocked economists into revising their forecasts, while the RBA governor Philip Lowe said a 25 basis-point hike was a signal of moving towards “business as usual”.
NAB chief economist Alan Oster said Dr Lowe’s comments are likely to see the RBA board trying to “shift the cash rate closer to neutral as soon as possible”.
Governor Lowe also suggested that 2.5 per cent interest rates would be close to neutral.
Mr Oster said NAB was expecting another two 50 basis-point hikes next month and in August, which would take the official rate to 1.85 per cent, followed by another 25 basis points in November to 2.1 per cent.
“While this would be around the pre-pandemic level, it is likely to still be considered well short of neutral given the pick-up in inflation relative to pre-pandemic levels,” Mr Oster said.
Mr Oster said another “very high” inflation figure was expected next month and that would give the RBA “enough ammunition” for a third consecutive 50 basis-point hike.
The big banks have already passed on the latest hike to consumers and that will add a homeowner squeeze to the latest cost-of-living issues.
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