020 7898 0500Yesterday started with a bang, with BoE policymaker Vlieghe predicting six rate hikes over the course of the next 36 months. It should be noted that Vlieghe is known for being rather hawkish and it is slightly bewildering how he can arrive at this suggestion given recent economic data from the UK. There have been repeated signs of a weakening UK economy and although the Bank’s remit was previously concerned with targeting inflation, it was extended following the financial crisis. Thus, UK economic performance cannot be ignored when making its interest rate decisions.
This perhaps best explains why the pound retraced its gains against the dollar following news that Uk factory orders fell to their lowest level since November 2016. The release weakens the case for increasing rates and investors quickly lost their enthusiasm for the pound. This is a trend that could continue today with the release of April’s inflation rate. It is expected to hold steady at 2.5%, but we might see some sterling strength if it comes in higher than that.
Finally, Carney highlighted the cost of the 2016 EU referendum yesterday by telling MPs that UK households are £900 worse off than expected. According to Carney, the UK is between 1.75% and 2% smaller than could have reasonably been expected. It serves to highlight what impact Brexit has had on UK households so far which is rather sobering when you consider we haven’t yet left the EU.
