The two factors hurting the GBP
The GBP has been pressured as we start 2020 from weak data points and the Bank of England members’ bearish outlook. First of all, we had a string of warnings from the Bank of England members, Broadbent, Carney, Tenreyo, Vlieghe, and Saunders, who were all sounding the alarm in favour of weaker interest rates coming for the UK. Now, at the last BoE meeting, there were only two bank members voting for cuts. That number has risen and the odds of a rate cut at the January 30th rate meeting are now greater than 70%.
Secondly, the weak data points I alluded to earlier have made a rate cut much more likely. Month on month GDP was down last week to -0.3% vs 0.0% expected. Month on month manufacturing was down in January to -1.7% vs -0.3% expected. Inflation data last week was a bad miss too, with 1.3% printed vs an expectation of 1.5%. The bad retail sales miss of -0.6% was the final blow which puts a rate cut front and centre for the Bank of England. This retail sales point included Black Friday sales and, historically, this retail sales point at this point of the year beats expectations. However, this year it missed them.
This is a very poor signal and acknowledgement that the UK consumer is cautious over Brexit concerns. Pounds are being kept in wallets and purses as Brexit uncertainty impacts UK consumer spending.
The key issue here is whether the BoE will cut and signal further rate cuts for 2020 at the January 30th meeting.