The pound remains on a weaker footing as the Conservative leadership contest continues between Boris Johnson and Jeremy Hunt. With the press heavily engaged and the headlines becoming uglier in the Boris vs Hunt battle, the markets are keen to establish who the next Prime Minister will be.
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Boris Johnson has signalled very strongly that he will take Britain out of the EU by the existing deadline of 31st October with or without a deal, something that the foreign secretary Jeremy Hunt is not on board with having pledged to leave the EU with a withdrawal agreement in place.
The next Prime Minister will be announced Tuesday 23rd July and will take power the following day. Clients with pending requirements may wish to consider planning around this major event, as you could see movement on sterling interbank rates.
Some Conservative MP’s have stated they will seek to bring down the new Prime Minister and potentially the government if he pushes for a no deal Brexit. This prospect does leave the door open for another general election. This scenario would likely see a volatile period for the pound in the months ahead as it could change the arithmetic in parliament and help determine the course of Brexit.
Data is light today with just mortgage approval numbers from the British Bankers Association released this morning which may offer some more clues as to the strength of the UK housing market.
The most important release will be Friday’s Gross Domestic Product numbers which could put pressure on the price of sterling. Expectation is for a drop in GDP in the first quarter to 0.2% down from 0.5%. A very weak number could potentially see the pound interbank rate to fall lower.
The Bank of England held interest rates last week as widely expected and voted unanimously to keep rates on hold at 0.75%. The commentary from the Bank is sounding much more dovish having also cut the growth outlook for the UK down from 0.2% to 0% for the second quarter citing concerns over the health of the global economy and Brexit. The outlook is also a weight on sterling interbank rates as with no interest rate hikes expected until after Mark Carney’s departure from the Bank in January 2020, only a few months after the existing departure date for Britain’s exit from the EU.
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