British Pound: Stronger growth offsets labour weakness – MUFG

MUFG’s Lee Hardman says the Pound is holding up better than expected despite the worsening energy price shock. Stronger United Kingdom (UK) growth and rising expectations for policy tightening by major central banks are reinforcing expectations that the Bank of England (BoE) could begin tightening soon. MUFG expects rates to remain unchanged this week, while weakness in the labour market could limit the eventual scale of tightening.

BoE tightening expectations support Pound

"The pound is continuing to hold up better than expected to the worsening energy price shock."

"Growth is expected to slow significantly in the second half of this year similar to the seasonal pattern evident in recent years although July activity suggests it may not slow as much as feared."

"The combination of stronger growth, rising energy prices and building expectations for other major central bks to tighten policy have been encouraging expectations that the BoE will soon take action to begin tightening policy as well."

"While we expect the BoE to leave rates on hold this week, we expect the updated guidance to indicate that MPC members are moving closer to voting to a hike as soon as the next meeting in November."

"Weakness in the labour market could curtail the scale of tightening the BoE is willing to deliver."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)