DailyFX European Market Wrap: BOE's Growth Downgrades Sink British Pound: 8/3/17

The Bank of England has voted to leave UK interest rates unchanged and has downgraded its growth forecast for 2017 and 2018. The MPC voted by a majority of 6-2 to leave policy unchanged compared to a 5-3 vote last month. The bank also cut its 2017 growth forecast down to 1.7% from its previous forecast of 1.9% made in May. The Bank left its inflation forecast for the next three years broadly unchanged.

The 18% fall in the pound since November 2015 was highlighted – this raises the price of imports for the UK and squeezes household spending. Sterling dropped against the euro, gilt yields fell while the pound gave back some its recent gains against the USD dollar.

Next posted a return to quarterly sales growth supported by an improvement in product ranges and a spell of warmer weather. The company said full price sales rose 0.7 percent in the three months through June. Shop sales were down but Next Directory online shopping were up. The shares are back at a two-month high of 4400p.

Britain’s services sector accelerated a little in July. Markit’s services PMI has jumped to 53.8 last month, from 53.4 in June. UK companies reported that new business remained solid, and hiring picked up. But business expectations remained relatively weak, as “Brexit- related uncertainty continued to weigh on their growth prospects for the year ahead.”

For the Eurozone, the PMI results showed slowing growth. Markit’s composite PMI, which measures activity at factories and service sector across Europe, fell to a six-month low of 55.7 in July, down from 56.3 in June. BUT Retail sales in the eurozone exceeded expectations in June, rising by an estimated 0.5%, according to the European Union's statistics office Eurostat. The market expectation had been for a 0.1% rise.

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