Fundamental Outlook for British Pound: Bearish

- NIESR estimates show that UK GDP may have fallen by 1.5% during Q1
- UK industrial production fell for the 15th straight month, bringing the annual rate to a new record low.
- Check out our GBP/USD outlook based on technicals, interest rates, and PPP

The British pound ended the past week within a tight range versus the US dollar of 1.4600-1.4750 following the March 9 rate decision from the Bank of England, as they left the Bank Rate at a record low of 0.50 percent, as expected. This was the first “no change” decision since September 2008, but the BOE Monetary Policy Committee’s (MPC) statement was short and sweet, providing little in the way of new information. The MPC did indicate that they would continue with the quantitative easing efforts announced on March 5, but that it would take another two months before the program was completed because they had only purchased 26 billion pounds in assets of the planned total of 75 billion pounds.

Ultimately, there are still significant downside risks for the UK’s economy and financial system, but as it stands, the markets are broadly anticipating that the BOE will continue to leave the Bank Rate at 0.50 percent throughout the remainder of the year, since further reductions are unlikely to have much of an impact. In the near-term, it may be worth looking for a GBP/USD break out of its recent range, and if risk aversion returns, the pair’s break could be a bearish one below 1.4600.

From an event risk perspective, there will be very little news on the wires to shake up the UK’s national currency. On Tuesday night at 19:01 ET, the RICS house price balance is forecasted to show that 77 percent of home surveyors saw a decline in prices during March, down from 78 percent in February. On Wednesday at 19:01 ET, the BRC retail sales monitor is likely to show persistently weak consumption on a same-store sales basis as the UK recession continues to put pressure on nearly every aspect of the economy.

Antonio Sousa is a Currency Analyst for FXCM.