GBP Monthly Review March 2018

The Bank of England turned more hawkish on inflation as the rate rose back above 3%. More practical action will be necessary to drive it back to towards the Government’s 2% target. A May hike is priced in.

The most recent MPC meeting has decided that Brexit is out of its remit and monetary policy will be determined according to inflation considerations. Latest GDP data shows growth falling to 0.5% YoY.

Any future Labour Government in the UK would negotiate membership of a customs union which would provide tariff free movement of goods. The cost of that policy in both economic and independence terms has not yet been discussed.

The medium-term target for the pound at 1.4250 has been reached and the pound has retraced below 1.4000. A period of consolidation will be favoured by the BoE as they try to tackle the rise in inflation.

Normal service will be resumed as Brussels gets tough over the cherry picking of the single market and customs union. Financial Services will be excluded from any deal as Frankfurt and Paris try to take precedence.

The UK’s hopes for an open-ended transition period will be dashed by Brussels as they expect Brexit to be completed by December 2020.

The border between Ireland and Northern Ireland has the potential to wreck the Government’s Brexit plans as they will not be able to negotiate away the North’s rights given the hold they have in Parliament.

The Bank of England will continue its Hawkish tone as inflation refuses to fall and negative wage growth continues. The market will continue to price in a hike in May but will expect further increases if inflation fails to behave.