BoE Warns Of Weakness, Even Without Brexit

Fundamental Forecast for GBP: Neutral

The British Pound put in a strong week of gains through Thursday, snapping the two-week losing streak that the Sterling put in against the US Dollar after running up to a new nine-month high earlier in May. Friday was a markedly different story, as GBP put in an aggressive drop after some interesting commentary from two members of the Bank of England.

Kristin Forbes is an external member of the Monetary Policy Committee of the BoE, and in comments overnight she mentioned that the recent slowdown in UK data may not be entirely Brexit-related. This was somewhat contradictory to the tone taken on during Super Thursday just a week earlier, in which the Bank of England rang alarm bells towards the potential consequences of a vote to leave the European Union, saying that higher unemployment, higher inflation, lower growth and a ‘sharp’ decline in the British Pound would follow should voters choose to leave the EU. At that meeting the bank had said that approximately half of the 9% decline in the British Pound since November could be attributed to Brexit risks. This also gave the inference that the recent slowdown in GDP (to .4% in Q1 from .6% in Q4 2015) may have been caused by the risk of the upcoming Brexit vote. Ms. Forbes offered a slightly different vantage point, and this was somewhat of an extension of what we heard from fellow MPC member Gertjan Vlieghe not more than 24 hours earlier.

Ms. Forbes mentioned that there is ‘fog over the data,’ referring to the fact that it’s near-impossible to attribute how much of the recent slowdown in British economic data can truly be attributed to the risk of a Brexit. She did acknowledge the logic of businesses to remain risk averse with such a profound vote slated for next month; but she also said that there is a ‘chance that other things are going on.’