Sterling shrugged off the bad run it has had since the turn of autumn. Yesterday’s encouraging news wasn’t the highly anticipated Bank of England (BoE) quarterly inflation report, which was expected to shift the market in one direction or the other. Instead, we had news that the High Court has ruled that Parliament must vote on whether the UK can start the process of leaving the EU by triggering Article 50.
This means the government cannot trigger Article 50 of the Lisbon Treaty without the backing of Parliament. This has given hope to the market that the government may need to negotiate more favourable terms and focus on single market access as a priority to get it ratified by Parliament. The Government is appealing, with a further hearing expected next month and the loser, ironically in the case of the government, may be able to make a further appeal to the European Court of Justice. The process could last for months if Parliament is denied a vote.
Meanwhile, slightly below the radar after the surprise news from the High Court were the BoE interest rate decision and quarterly inflation report. As expected, the BoE kept its key rate on hold, as expected. However, it was the rhetoric surrounding inflation that was closely watched. The BoE stated that it expects inflation to hit 2.7% next year, up from the current rate of 1%, and that a further interest rate cut this year was no longer an option. It is no surprise that the key component of the increase in inflation is due to the fall in sterling. We also had data from the dominant service sector, which posted solid growth, boosted by the Purchasing Managers’ Index (PMI). The index rose to 54.5 last month – the highest level since January – from 52.6 in September.
There is no significant economic data due from the UK today but it is not necessarily data that is moving the market. Instead the focus will be on any fallout from yesterday’s political development, as well as from events elsewhere.