GBP: More encouraging news from the UK offering support - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound is continuing to trade on a firmer footing in the near-term supported by reassuring evidence that the UK economy is holding up better than feared following the Brexit vote.

Key Quotes

“It was a view evident in the release overnight of the CBI’s latest quarterly Service Sector Survey which revealed that “the actual slowdown in growth on the office and shop floor has been relatively modesty”. The volume of business was broadly unchanged over the quarter, and is not expected to change significantly over the coming quarter.  Encouragingly the employment numbers have remained robust, especially in the consumer sector. However, businesses are worried about the future as optimism dropped at its fastest rate since November 2011. Businesses which cited uncertainty about demand/sales as a factor limiting capital expenditure rose to its highest level since May 2013.

Heightened uncertainty ahead of the referendum does not appear to have materially negatively impacted foreign direct investment into the UK. The Department for International Trade reported yesterday that a record number of overseas investments were made in the UK during the financial year 2015-16. Total projects financed by FDI rose 11% to 2,213 boosted by a strong pick up in inflows from emerging markets. It remains to be seen now what negative impact the Brexit vote will have on FDI going forward. Overall, the encouraging news flow from the UK is helping to support the pound at weaker levels which is already heavily oversold in the near-term.”