GBP: Brexit & UK economy in focus – MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound has started this year off on a stable footing defying expectations so far that it would weaken as the UK moved closer to triggering Article 50 by the end of March.

Key Quotes

“The government appears on course to trigger Article 50 as planned although could face more of challenge in passing the Brexit legislation through the House of Lords this week than they faced from the House of Commons. The House of Lords has a stronger footing to push back from and propose amendments to the bill although it will ultimately be passed. It will be very difficult for the unelected House of Lords to defy the result of the public referendum and the large majority in favour of the bill when it passed through the House of Commons. The developments should have limited impact on the pound.”

“Rising political risk in Europe continues to offer some support for the pound even as there are tentative signs that the UK economy is starting to lose some cyclical momentum in the near-term. The release on Friday of the latest UK real sales report for January revealed weak growth for the second consecutive month. The report has reinforced expectations that households are starting to feel the hit from higher inflation. Consumer spending appears set to expand more modestly in the first half of this year. For the UK economy as a whole, a pick-up in export growth and business investment could provide some offset to slower consumer spending.”