Unfavourable near term outlook for GBP
|The batch of economic news out of the UK so far this week appears to have more-or-less paved the way for another interest rate cut from the Bank of England when it next convenes in around a month’s time.
Tuesday’s thoroughly underwhelming labour data was followed up by Wednesday’s CPI report, which confirmed that UK inflation sank to a 10-month low at the start of the year. This morning’s January retail sales bucked the trend, with activity up 1.8% MoM and 4.5% on an annual basis (a near 4-year high). The preliminary February PMI figures will also be released this morning, but even a similarly large upside surprise here is probably unlikely to derail a March cut, which remains around 80% priced in by swap markets. Ongoing political jitters have added an extra risk premium to sterling in the past few weeks.
While the arrest of the now former Prince Andrew has dominated the headlines here in the UK, it’s the nagging pressure on Prime Minister Starmer’s position that investors will be far more interested in.
For now, talk of his imminent departure has calmed, although betting markets continue to assign an effective coin-toss that he’ll be out as leader by the end of June. The uncertain political backdrop, combined with the threat of further MPC rate cuts, does not exactly create a favourable near-term outlook for GBP.
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