The British pound has rebounded today thanks to broad dollar weakness and stronger manufacturing data. November PMI increased from 52.9 to 54.4, well above the market’s 52.6 forecast. Next to the Bank of Canada, the Bank of England’s monetary policy decision is probably the most interesting one this week because the chance for a rate cut is fifty-fifty.
Like Canada, the UK has been suffering from weaker economic data, but unlike the US’ northern neighbor, inflation remains a problem. The Financial Times has an article openly wondering about whether the UK would face a mild version of stagflation, which is slowing growth in an inflationary environment. Problems continue to plague the UK financial sector with RBS being the latest bank to reveal subprime losses. They are expected to announce GBP2 billion in write offs which is another reason why the BoE could surprise with an interest rate cut on Thursday. In the meantime, construction sector PMI is due for release tomorrow and we do expect pound bullish numbers.