BoE shifts to tightening bias while GBP facing stagflation risk - AmpGFX

The GBP was buffeted last week by the mixed data and shift to a tightening bias, according to the analysts at Amplifying Global FX Capital.

Key Quotes

“On Tuesday, the UK reported sharply higher than expected CPI inflation, rising now well above the 2% inflation target for both headline (2.9%) and core (2.6%).  However, on Wednesday, UK employment data was weaker than expected, including weaker wage inflation, pointing to a significant fall in real wages. On Thursday, retail sales were also weaker than expected, raising the specter of stagflation (rising inflation and weaker growth).”

“On Thursday, the Bank of England responded to the higher inflation trend with a more hawkish policy statement and a 5-3 split vote with three dissenters in favour of a rate hike.”

“The GBP slumped on 9 June on the election outcome where the Tories surprisingly lost their outright majority and PM May lost her mandate to negotiate a hard Brexit.  The GBP is weaker because the UK no longer has a clear plan or common political purpose to conduct Brexit negotiations.  Some investors may see a possible shift to a softer Brexit deal as a benefit for the GBP.  However, with so much uncertainty, it is hard to see business confidence improving in the UK.”

“The GBP was buffeted last week by the mixed data and shift to a tightening bias. Also influencing economic confidence may be a serious of terror incidents and the Grenfell apartment tower fire disaster.”

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