UK: Monetary policy, fiscal and trade deficits and Brexit will weigh on confidence - Westpac

Tim Riddell, Research Analyst at Westpac, notes that the UK’s Institute of Fiscal Studies released its budget forecasts in advance of the Autumn Statement, showing a larger than expected budget hole (GBP25bn) which is likely to increase as Brexit evolves.

Key Quotes

“CPI and PPI data could show an early move towards the higher inflation within BoE forecasts.”

“The confluence of easy monetary policy, fiscal and trade deficits as well as uncertainty over Brexit will continue to weigh on confidence despite better activity data recently. The latest BoE Agent’s Report showed that critical employment and investment intentions remain weak. Despite a turn in manufacturing employment, it remains firmly negative.”

“Although the prospect of a base having formed in the 1.18-1.20 area, the weight of uncertainty should keep GBP/USD capped below 1.2600, despite position adjustment risks.”