Today the Bank of England will decide about its interest rate that should likely remain around 0.25% against the backdrop of political uncertainties. Indeed, the 8th of June New General Election will take place, after Theresa May asked the Queen Elizabeth to dissolve the parliament. UK Prime Minister is attempting to gain a stronger majority before negotiation on the article 50 with the EU.
This is why the British central bank should favour today the wait-and-see mode. Political uncertainties regarding the 2-year negotiation period prevail. Anyway, the BoE has gained some time since last year as the UK economy had clearly benefited from pound devaluation after the Brexit vote. The inflation is now standing at 2.3% y/y. Yet the growth seems still a bit slow (0.3% for Q1 GDP). The unemployment rate keeps declining and is now standing at a 12-year low.
However, there is one important thing to be said, the UK trade deficit is still very large despite the weak pound. The trend is clearly negative and amounts for £3.6 billion. We believe that, even though the weak pound is helping the economy, it also means that the overseas demand is falling for UK goods certainly on fears that the trade relations with the UK are unclear at the moment.
By Peter Rosenstreich
