Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Rises: SA Drought Fuels Recession Fears
Rise in Number of Unsecured UK Loans
The Bank of England’s (BoE) Credit Conditions Survey has found an increase in the number of unsecured loans being offered in the UK as lender’s appetite for risk rises. There are already fears that Britain’s recovery is being supported by unsecured credit, however BoE Governor Mark Carney has recently dismissed this idea. There was a significant demand increase for Buy-to-Let (BTL) mortgages in the final quarter of 2015 – something the BoE will likely keep close tabs on. The vulnerability of the BTL market was one of five major threats to the UK economy, according to a BoE report late last year.
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Rand (ZAR) Weak as Worst Drought in a Century Hits South Africa
South Africa is currently in the grip of the worst drought in more than 100 years. The drought has slashed agricultural output as crops fail, pushing up the price of food and threatening to tip South Africa into a recession. Last year, South Africa’s maize crop fell by a third, with many predicting this year will be even worse. The country, usually a net exporter of maize, is facing the possibility they may have to import up to half the required maize, around 5 million tonnes, in 2016.
60,000 Businesses in Key UK Services Sector Struggling to Survive
There was a sharp spike in the number of UK businesses reporting ‘significant’ financial distress during the final quarter of 2015. 270,000 companies reported problems, often linked to a deterioration in sales, profit or working capital, or rising costs. All sectors of the UK economy saw an increase in the number of businesses who were struggling financially, with manufacturing reporting a rise of 18% in the number of firms suffering financial problems. 60,000 businesses in the services sector are currently struggling to survive, along with 41,000 consumer businesses and 50,000 construction or real estate firms.
The cycle of inaction from the Bank of England (BoE) remains unbroken today after the Monetary Policy Committee (MPC) left interest rates untouched again. Meanwhile, a quartet of positive South African data has failed to allay fears of a recession in the South African economy after the sharp dips in the currency which were caused by investor panic in China.
UK Interest Rates on Hold for 82nd Month, GBP/ZAR Remains Positive on McCafferty Optimism
The Monetary Policy Committee have once again voted to leave interest rates on hold at 0.50%, marking the 82nd month without a change. Despite the widely anticipated result, Pound Sterling seems little affected by the news, having been prevented from losing ground by the hawkish actions of Ian McCafferty. Voting was once again split 8-1, with McCafferty the only member calling for a 0.25% rate hike.
While this is the sixth consecutive meeting in which McCafferty has voted this way, today’s split is significant because it shows that the policymaker does not consider the recent events in China, or the tumbling price of oil, to be of particular detriment to the UK economy.
The decision has had little impact upon exchange rates, with very few believing that there would be any change in monetary policy. Stocks were relatively unaffected by the news, although other factors have caused the FTSE to drop -0.8%.
The GBP/ZAR exchange rate is currently trading around 23.8640.
South African Rand to Pound Sterling (ZAR/GBP) Exchange Rate Slips on Recession Fears
The belief that the South African economy might slip into recession continues to hang over the ZAR/GBP exchange rate today. The Pound has seen several sharp leaps against the Rand as concerns over the Chinese economy influenced currency markets across the world. The Rand is one of the most volatile currencies among emerging markets because South Africa counts China among its key export markets.
Pressure on the Rand has been lifted slightly by the weakening of the asset, as well as the drop in global oil prices. Finance Minister Pravin Gordhan, who controversially came back into power following an ill-handled juggling of the position by Prime Minister Jacob Zuma, has tried to calm fears, claiming that the South African economy will not enter recession during 2016.
‘We are growing as an economy, we are not going into a recession,’ Gordhan said at a media briefing, although he added that, ‘we are not growing fast enough.’
Rand depreciation has been softened today by a series of positive data releases. The Barclays Manufacturing PMI rose more-than-expected from 43.3 to 45.5, Gold Production increased 2.2% year-on-year (YoY) after a -7.5% fall previously and the YoY decline in Mining Production slowed from -4.7% to -0.8%.
The ZAR/GBP exchange rate is currently trading around 0.041.
Pound Sterling to South African Rand (GBP/ZAR) Exchange Rate Forecast: UK Inflation Data Due Next Week
Tomorrow will be a quiet end to the week, with only Construction Output data for the UK and no data for South Africa. Monday holds little of interest for investors either, but Tuesday sees the release of UK inflation and Retail Price Index figures.
The GBP/ZAR exchange rate is currently trading between 23.7830 and 24.0460.