- BoE Interest rate decision on Thursday
- Mark Carney warns that “some monetary policy easing will likely be required over the summer”
- Pound could be set for further weakness
Ahead of the BoE decision on Thursday
The Brexit impact is yet to be seen, economic releases for the UK are backlogged prior to the Referendum and although the Pound has slumped post-Brexit, there remains positive signs that the UK is open for business.
The FTSE100 is at an 11 month high and George Osborne’s proposal of cutting corporate tax to 15% could be what the UK needs to keep business alive during the withdrawal period.
Mark Carney continues to implement measures to limit the impact of market volatility through liquidity boosting and swap lines. He may be under pressure to cut rates on Thursday but is it likely to be as early as then?
He may choose to hold off until the summer once he has a clearer picture of economic outlook before pulling the trigger on an Interest rate cut, then again, he may what to pre-emptively limit any further impact of Brexit.
If the BoE cut rates on Thursday
I don’t expect the Pound to fall much on any news of a rate cut on Thursday, markets would have already priced in an Interest rate cut so I expect at worst, GBPEUR exchange rates to drop to 1.14-.15. On the other hand, a hold on rates could signal Sterling strength if he’s able to downplay the impact of Brexit as far. As of yet, the impact of Brexit is yet to be seen and I believe that Carney will keep rates on hold until further evidence of economic slowdown comes to light.
When will the Pound recover from Brexit?
With Theresa May the only candidate left fighting to take David Cameron’s place, negotiations could begin sooner if she takes over before September. This also assumes she invokes Article 50 straight away.
The Pound will likely recover during the negotiation stage, any signs of “business as normal” will be welcomed by investors as it signals a continuation of existing agreements.
However, this could easily work the other way, any signs of conflict or non-agreements could be bad for the Pound and its therefore possible current exchange rates could fall further short term. I do therefore expect current GBPEUR exchange rates to remain in the mid-teens for the next few months.
