Better than expected UK growth in the first quarter has perhaps sewed the first seeds of recovery for the pound after the currency hit a 7-month low against the US dollar just yesterday. Odds of an August rate hike from the BoE have now increased and the upwards revision is in keeping with the bank’s comments that Q1 data is typically subject to revisions.
The pound fell roughly 10% in a little over 2 months since its April peak largely due to the BoE backing down on a May rate hike, and there is some suggestion that the depreciation was a bit of an overreaction. While Brexit remains a major potential source of uncertainty there has been mildly positive developments on that front in the ensuing period since the pound peaked, with the government just about managing to hold things together.
Comments also out this morning from Barnier are also pleasing, with the chief EU Brexit negotiator stating that he is ready to invite the UK for more talks on Monday and that while there remains a divergence over the Irish border issues, progress has been made.
At the same time the most recent figures also showed an improvement in the current account deficit for the same period which now sits at its lowest level in a year after the second consecutive above forecast print.
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