According to Tim Riddell, Research Analyst at Westpac, Brexit remains critical as despite hard tones from EU’s chief negotiator Michel Barnier, comments from EU-27’s Brexit summit hinted of support for a longer transition period and more open EU access (a soft Brexit).
Key Quotes
“PM May’s Cabinet reshuffle was criticised, but has ensured continuity (at present) for Brexit negotiations which restart in late Jan. This has pushed BoE’s GBP TWI towards 18 month range highs.”
“The BoE does not meet until 8th Feb and so will be able to assess further labour data, initial Q4 GDP data as well as January PMIs. Saunders, known to be on the hawkish side, has indicated potential upside risks, but also Brexit concerns and a very cautious stance for BoE. However, recent strong production data belied weakness in construction, exemplified in Carillion’s failure. Housing reports are weak and could weigh on households and so maintain BoE’s glacial guidance.”
“GBP firmness against a weakening USD suggests a higher 1.30-1.40 range, but GBP remains contained on a TWI basis.”
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