UK: Less gloomy OBR outlook for the economy may vindicate a resilient GBP - ING

According to Viraj Patel, Research Analyst at ING, for GBP markets, there will be a narrow focus over the next 10 days on whether a Brexit transition deal can be struck at the 22-23 March EU leaders summit.

Key Quotes

“We got a brief glimpse of how sterling might react on any confirmed agreement – with the currency nudging higher on comments by Brexit minister Robin Walker that a transition deal is “very close” to being finalised. Still, we remain in wait-and-see mode – with only EU confirmation over any transition deal progress to further lift GBP higher this week (we would expect GBP/USD to move above 1.40 on any positive outcome at next week’s summit).”

“For today, the attention shifts to the Chancellor’s Spring Statement – where we’ve led with the title ‘Spring Budget Break’ given that we may get some good news in the form of small adjustments to the OBR’s projections, namely a narrower budget deficit for 2017/18 and perhaps an upward revision to the 2018 UK GDP growth rate (1.5% current). The former – as well as the prospect of lower debt issuance in 2018/19 – is widely expected and hence we would expect any positive impact in gilt and GBP markets to be fairly short-lived (GBP/USD resistance at 1.3930/40).”

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