Market Analysis

UK Data May Put Sterling In Real Time

Given the level of UK inflation, US firm Morgan Stanley made the point last week that real interest rates in Britain are the lowest in the G10.  With that in mind it’s worth noting, as Dutch bank ING wrote on Friday, that there is a plethora of UK economic data this week that “includes the latest CPI, jobs, wage growth and retail sales releases.” There’s an argument that a continuing tight UK jobs market could lead to an uptick in wage inflation alongside the already-elevated level of UK CPI. That could feed a yet lower UK real interest rate given that the Bank of England has made it quite plain that this month’s 25 basis point hike in interest rates is not the prelude to further moves in the very near term. There is also the fact that there remains little indication as yet that Brexit negotiations will have progressed far enough to allow for the commencement of talks to begin in December on a future trading relationship between Britain and the European Union. Traders will have their own opinions but sterling bears may be sharpening their claws again. This week’s UK data may hold added importance for the currency market.

Written by Neal Kimberley, External Currency Analyst.
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