Ahead of the Conservative party conference next month, the Prime Minister has pursued a cabinet reshuffle. Whilst Boris Johnson has maintained strong support amongst his own party, divisions within his cabinet have been evident amidst rising Covid-19 cases and a taxation hike. There were several changes within major offices of state. Liz Truss moves from Minister of International Trade to Foreign Secretary. Outgoing Foreign Minister Dominic Raab moves back to Secretary of State for Justice. The move so far at the public level has been peaceful with the former foreign Secretary wary of his own unpopularity given his role in the Afghan crisis and the role of his ministry during his tenure. Any major risk to GBP so far from this particular adjustment has therefore been largely contained. Markets will however continue to keep a close eye on those pending trade deals the State Department for International Trade was working on. The role now undertaken by Anne-Marie Trevelyan will therefore be scrutinised by markets and the public alike in the coming weeks.
Another casualty of the cabinet reshuffle fell upon Gavin Williamson MP who was replaced by Nadhim Zahawi as education secretary. Another troubled and vulnerable post under this government, the Prime Minister was quick to implement a change of leadership. The Conservative party chairman yesterday warned of further hirings and firings throughout the party. Political risk, perhaps with the exception of UK-EU tensions expected to build as this month progresses, is towards its lowest point in several years. Whilst that might lead to defensive de-risking should conditions change, for now it has allowed GBP to remain well bid.
Yesterday, inflation data was read and showed the price level within the UK economy running hot, above previous expectations. The money market was already pricing in rate hike expectations faster than the Bank of England. Thanks to yesterday’s reading that showed August’s annualised inflation level at a whopping 3.2% (versus a previous 2% and forecasted 2.9%), markets are pacing even further ahead. This reading encouraged further speculation of BoE rate hikes, now comfortably pricing in two 25-basis-point hikes in 2022. The first hike is now being revised even earlier towards February next year. Whilst markets may well be disappointed by the Bank of England’s actual rate setting path, the shift has attracted further attention to the UK Pound. The monetary policy committee meeting next week will now attract even more scrutiny with more policy makers expected to join the call for an immediate reduction to the asset purchase program.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Morning Brief – UK Wages
Humphrey Percy
Fri 26 May 2023
UK Wages Bank of England Governor Andrew Bailey yesterday warned of the pressure on wages that are threatening to lead to a wage price spiral as the effects of inflation on the cost of living together with the 12 consecutive interest rate rises that consumers have experienced. The market has not enjoyed the poor inflation […]
Morning Brief – UK inflation – June hike worthy?
Charles Porter
Thu 25 May 2023
UK inflation – June hike worthy? Yesterday’s inflation data surprised markets. The data was released slightly ahead of European core trading hours. The lighter liquidity available at this time could have resulted in the short-term spike towards 1.2450 on cable and around half a cent to the mid-1.15s within GBPEUR. However, you could, and perhaps […]
Morning Brief – International Monetary Fund
Humphrey Percy
Wed 24 May 2023
International Monetary Fund With no sign of insouciance despite its 180 degree turn in a two month timeframe, the IMF yesterday reversed its downbeat if not disastrous forecasts for the UK and stated the UK is no longer heading for a recession and nor is it the weakest member of the G7 when it comes […]
