After this morning’s comments from MPC member Martin Weale the pound has slipped back quite sharply retesting the levels last seen a couple of weeks ago, below 1.3100.
Mr Weale, who leaves the MPC next month, stated he had changed his mind about the prospects for further stimulus from a week ago when he urged a wait and see approach with respect to further measures.
Last week’s flash PMI’s appear to have convinced him of the need for further measures to boost the economy, despite a Bank of England survey which suggested that conditions post Brexit weren’t as bad as originally feared.
While Mr Weale appears to have changed his mind his influence on the rest of the committee is likely to be limited, firstly because he is leaving but also because over the past few years he has voted against the status quo on a fairly regular basis without taking the rest of the MPC with him.
This suggests that while he may well join Gerthan Vlieghe in voting for a rate cut or further stimulus we would still need to see another three members to do the same when the BOE meets next week along with the latest inflation report, which could well offer further insights into the health of the UK economy.
We will also have sight of the latest PMI reports for July which could well get revised higher, now that the UK political situation has become a lot clearer.
The Bank of England will also have to weigh up the effects on UK banks given today’s announcement by RBS to warn they may have to start charging business customers for credit balances.
There could be no surer way to undermine the banking system than to start doing that and Mark Carney and other policy makers are likely to be very reluctant to want to start pushing UK banks down that road.
Looking at the current GBPUSD chart we can see trend line support at 1.3050 from the recent lows at 1.2800, which needs to hold to prompt a rebound back towards 1.3300, or we could well tip back sharply lower, on a break below 1.3040 towards 1.2800.
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