It’s 09:30 on a Friday morning in the United Kingdom, and possibly for the 1 billionth time this hour, the word Brexit has been mentioned again.
8 months since the vote to leave the EU, and the markets still cannot decide what the fundamental picture is for the UK.
On the face of it, the economic data points have been reinforcing of the concept of a resilient Sterling, attracting overseas custom with its devalued currency. Inflation was expected to rise, and with it, the oncoming of increased interest rates from the BOE.
However two factors have stayed that point of view this week. Firstly, last week inflation figures for January arrived somewhat below expectation. A CPI increase of 1.8% was indeed the highest since 2014… but it was below the analysts’ expectations. At the time, this didn’t matter too much as markets were still in thrall of the ongoing opera that is The Donald.
However retail sales figures from this morning start to change the context of the recent CPI data, with data from the Office of National Statistics showing that retail sales figures had fallen in January by 0.3% vs. the expected gain of 0.9% – this coming in the light of a fall of 2.1% in December.
What these 2 charts show in terms of data is that inflation is increasing, and overall, consumers are not consuming.
This could be a dangerous cocktail for the UK economy. No further evidence of that is needed than in the Sterling Futures contract. Where cable saw a massive repricing just before the data. Falling from $1.2513 to $1.2392 by the time the data had cleared.
For a while it seemed Cable could have shaken off its sensitivity for at least the short term, but reactions like this show just how vulnerable the currency is to speculation surrounding the outcome of Brexit.
On a day where Tony Blair has also resurfaced to lead the pro EU fight, the dark clouds of uncertainty have begun to gather once again over the UK and it’s currency.