Pound: Stronger UK growth and reverse-Brexit risk – MUFG
Lee Hardman at MUFG reports the Pound is consolidating near year-to-date lows against the Dollar despite resilient UK growth, with Q1 and Q2 GDP both revised higher and BoE staff upgrading Q3 forecasts. Hawkish comments from Bank of England (BoE) officials support expectations for rate hikes, while Prime Minister Andy Burnham’s openness to closer EU ties raises the prospect of a future reverse-Brexit trade for the Pound.
BoE hawks and EU re-entry debate
"The pound has been consolidating at close to year-to-date lows against the US dollar this week at just above the 1.3200-level."
"They have raised their forecast for growth in Q3 to 0.4% up from their previous projection of 0.1% set back in July."
"Stronger growth will encourage the BoE to tighten policy soon if higher energy prices conte to prove more persistent."
"He judges that risks to the inflation outlook are “more titled to the upside”."
"It opens up the possibility for a potential reverse-Brexit trade for the pound in the future."
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