GBP: Signs of stabilisation continue – ANZ

GBP continues to show signs of stabilising against the backdrop of an improvement in the c/a deficit, according to Brian Martin, Research Analyst at ANZ.

Key Quotes

“The deficit narrowed sharply to 2.4% of GDP in Q4 from 5.3% in Q3 driving both an improvement in the trade deficit (GBP4.8bn vs GBP14.8bn) and a narrowing in the primary and secondary income deficits. In addition, expectations that the BoE may need to raise interest rates are growing, which has provided the pound with some support, despite the slowdown in growth.”

“The sharp spike in inflation (2.9% y/y) has raised the debate over whether or not interest rates may need to rise.”

“Sterling may benefit from some near term weakness in the USD, but we view the upside as limited.”