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U.K. Economy Takes a Hit as Consumer Spending Slumps Further

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  • U.K. Economy Takes a Hit as Consumer Spending Slumps Further

U.K. consumers cut back on spending for a third month in July, putting them in their worst slump in more than four years and dealing another blow to the economy at the start of the the quarter.

The 0.8 percent year-on-year drop in spending was broad-ranging, with clothing, household goods, food and transport among the worst hit, IHS Markit and Visa said in a report published on Monday.

The decline is being driven by a squeeze on pockets as inflation outpaces wage growth, as well as concerns among shoppers about the broader outlook after the economy slowed dramatically in the first half of the year.

The downbeat report comes days after the Bank of England downgraded its economic outlook and Governor Mark Carney warned that Brexit uncertainty is weighing on business and households. BOE Deputy Governor Ben Broadbent said Friday that the “maximum rate of pain” for consumers will soon pass, though any improvement could be modest. The central bank also cut its forecast for wage growth last week.

“Alongside the renewed squeeze on household budgets, uncertainties linger over the direction of the economy,” said Annabel Fiddes, an economist at IHS Markit. “This makes it seem unlikely that consumer spending will recover in the current challenging conditions.”

The July consumer figures showed a 6 percent increase in spending at hotels, restaurants and bars. Markit said this may be partly related to an increase in “staycations,” with the weaker pound making foreign holidays more expensive.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade long experience in the global financial market. Contact Samed on Twitter: @sameolukoya

Forex

Foreign-Currency Shortages to Render Nigerian Banks Vulnerable -Moody’s

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Forex Scarcity Renders Nigerian Banks Vulnerable

Nigeria’s banks to experience acute funding challenges as the drop in foreign currency deposits hit a record-low following COVID-19 pandemic disruption, stated Moody’s.

In a recent report titled ‘Renewed foreign-currency shortages highlight vulnerability for Nigerian banks‘ published by Moody’s Investors Service, a bond credit rating business of Moody’s Corporation, the drop in dollar deposits amid low oil revenue, volatile foreign investment and declined remittances from abroad due to COVID-19 pandemic are threatening to renew forex liquidity crisis of 2016-2017 on Nigerian banks.

“Lower dollar inflows at a time when foreign currency borrowing will likely be more expensive for Nigerian banks will strain their foreign currency funding, despite substantial improvements compared to 2016,” said Peter Mushangwe, Analyst at Moody’s.

“Our moderate scenario where foreign-currency deposits decline by 20%, while loans remain constant, would increase rated banks’ funding gap to NGN1.5 trillion [$3.8 billion], and to NGN1.9 trillion [$5.0 billion] under our severe-case scenario of 35% foreign-currency deposit contraction, creating acute funding challenges.”

According to Moody’s, oil and gas exports account for about 90 percent of Nigeria’s foreign currency revenue. However, with crude oil now trading at around $40 per barrel, far below its average of $65 per barrel in 2019 and $72 per barrel in 2018, Nigeria’s banks are expected to struggle to meet foreign-currency withdrawals in the next 12 to 18 months.

Moody’s said its rated “banks reduced their foreign currency funding gap to a combined NGN354 billion ($984 million) in 2019 from NGN1.436 trillion ($5.5 billion) in 2016. The ratio of foreign-currency loans to foreign-currency deposits at Moody’s rated banks dropped to 106% at the end of 2019 from 135% in 2016 as banks cut back on dollar loans while building up their dollar deposits.

“The smaller funding gap will enable the banks to better withstand unforeseen deposit withdrawals and likely higher borrowing costs. However, in the event of foreign currency deposits contracting by 20% or more, banks’ funding gaps will be significant.”

This further explained why the Nigerian Naira is trading at a record low of N461 against the United States dollar on the black market in recent weeks.

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Naira Records Marginal Gain Against the US Dollar on Thursday

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Naira Gains Marginally  Against the US Dollar On Thursday

The Nigerian Naira gained slightly against the United States dollar both on the black market and Investors and Exporters’ Forex Window on Thursday

On the black market, the local currency gained N1 from the N462 it exchanged against the US dollar on Wednesday to close at N461 on Thursday.

This slight improvement continues against the Euro single currency on Thursday as the Naira gained N2 from N505 it traded on Wednesday to N502 on Thursday.

However, the Nigerian Naira was unchanged against the British Pound. The local currency traded flat at N560 against the British Pound.

On the Investors and Exporters’ Forex Window, the Naira gained 0.13 percent or 50 kobo against the US dollar to trade at N386. This was after trading as low as N389.75 during the trading hours of Thursday.

Activity level rose by almost 2000 percent from $10.37 million turnover recorded on Wednesday to $204.90 million on Thursday.

The Nigerian Naira remained under pressure as dollar scarcity continues to hurt its value and sentiment.

Also, the lack of clear policy direction is one of the reasons Nigeria continues to struggle with needed capital importation and huge forex demand from investors looking to repatriate their funds.

The Federal Government recently raised fuel pumping price at a time when most nations are reducing costs to ease economic burden on their citizens.

This move already rejected by the Nigeria Labour Congress (NLC) on Thursday highlighted the nation’s lack of economic direction despite numerous announcements by the central bank and federal government to mitigate negative impacts of COVID-19 on the economy.

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Naira Exchanges at Record-low Against US Dollar on Black Market

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Naira Trades at Record-low of N462 Against US Dollar

The Nigerian Naira plunged to a record low of N462 against the United States dollar on Wednesday on the black market as scarcity persists.

The local currency lost N2 against the US dollar from the N460 it traded on Tuesday to N462 on the black market on Wednesday. While against the British Pound, the Naira remained unchanged at N560. The same rate it exchanged on Tuesday.

Similarly, the Nigerian Naira remained flat at N505 against the Euro single currency on the black market.

On the Investors and Exporters Forex Window, the local currency remained unchanged at N386.50 to a US dollar, the same rate it was exchanged on Tuesday.

Activity on the platform dropped on Wednesday as daily turnover stood at $10.37 million, below the $14.37 that was exchanged on Tuesday.

Scarcity across key foreign exchange segments continues to hurt the nation’s currency and economic outlook due to the inability of investors and businesses to access foreign exchange needed to import raw materials into Africa’s largest economy.

This was evident in the broad-based decline recorded in the manufacturing sector in the month of June.

Also, the unconfirmed report that the Federal Government is looking to converge the nation’s exchange rate due to the pressure from the International Monetary Fund (IMF) added to Naira pressure as speculators and hoarders now have reason to remain in business.

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