Improving risk sentiment and higher UK yields fail to support the pound – MUFG

The pound has continued to underperform over the summer period. The lack of follow through to a stronger pound from the improvement in risk sentiment and higher UK yields has disappointed, economists at MUFG Bank report.

BoE’s policy rate still appears relatively unattractive in real terms

“The pound’s failure to derive support from the recent improvement in risk sentiment and higher UK yields could reflect that growth concerns remain a heavy weight on the pound.”

“Even more restrictive BoE policy rates would act to deepen the economic downturn in the UK. At the same time, even if the BoE does deliver higher rates they are still expected to remain well below inflation and deeply negative in real terms.”