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Sterling stays firm

• Posted by Shyam Gokani in Bank of England, Bremain, Brexit, Currency, David Cameron, Dollar, Economy, EUR, GBP, Mark Carney, Referendum, Sterling, UK
• July 18, 2016
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Sterling rose on Monday, boosted by expectations of inflows from an acquisition deal after Japan’s Softbank agreed to buy chip designer ARM in a 24.3-billion-pound deal which should help plug Britain’s yawning current account gap.

The pound extended gains after Bank of England policymaker Martin Weale said he was unsure if he would back an interest rate cut at next month’s meeting. That contrasts with most of his colleagues who think a rate cut is likely, given expectations that the UK could slip into recession.

Weale, who will step down after next month’s meeting, said he did not see any sense of panic among consumers or businesses after Britain’s vote to leave the European Union last month, and that the central bank should not be afraid of disappointing markets.

Earlier, sterling rose on hopes that the Softbank deal would help soothe investors’ fears about Britain’s current account gap. Finance minister Philip Hammond welcomed the all-cash deal and said Britain remained an attractive destination for investment after the Brexit vote.

Investors are worried that Britain will face a recession in coming quarters and will find it increasingly hard to finance its current account deficit – currently at around 5 percent of GDP – and amongst the highest in the developed world.

Despite this morning’s bounce, traders remain cautious about the currency with recent economic surveys pointing to a weakening in business and consumer confidence.

A survey by Deloitte released this morning showed Britain’s biggest companies are beset by doubts about the future after last month’s vote and have slashed their investment plans. Also a survey by the British Retail Consortium found that the number of shoppers heading to the high streets and retail centres fell at the fastest pace in more than two years in June.

All of which kept alive expectations that the Bank of England would ease monetary policy next month.

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