Whoever thought that the Pound and major London-listed stocks were beginning to shrug off Brexit developments and focus instead on UK economic fundamentals may have to reconsider. The UK currency was modestly higher on Wednesday, with GBP/USD gaining 46 pips to 1.2234 late in the European day; while the FTSE 100 index dipped to 6,918 – its lowest level since October 3 – before the losses were pared.

Sterling was helped, ironically, by a report from the Resolution Foundation arguing that the UK could face an £84 billion black hole in the country’s public finances in the wake of the Brexit vote. If the research group is right, that could mean higher government borrowing, rising UK sovereign bond yields and therefore more support for the Pound. The yield on the benchmark 10-year Gilt duly climbed to 1.150% from 1.089% late Tuesday, helping the currency to recover.

The Pound was helped too by a report suggesting that Prime Minister Theresa May has stepped back from earlier comments interpreted as criticism of Bank of England Governor Mark Carney. Speculation that Carney is considering leaving the BOE in 2018 rather than completing his full eight-year term that ends in 2021 has put pressure on the currency so support from the Prime Minister was seen as positive.

So too was Carney’s testimony to UK lawmakers in the House of Lords Tuesday, when he suggested that the inflationary impact of the Pound’s decline could encourage him to vote against any further interest rate cuts. The BOE’s Monetary Policy Committee next meets to consider UK rates on November 3 so any change then seems unlikely.

However, there are negatives too for the Pound. UK Trade Secretary Liam Fox told another committee of lawmakers Wednesday that the difficulties in concluding an EU-Canada trade deal showed the importance of the UK reaching an agreement over its future relationship with the EU before it leaves. That said, doubts that such an agreement can be reached are widespread.

Moreover, mortgage approvals data from the British Bankers Association revealed a 14.9% fall in September year-over-year, while the Centre for Economics and Business Research argued that London property prices are set to fall next year as uncertainty about Brexit dampens the UK housing market. Both reports could be seen as implying that monetary policy could yet be loosened, a negative for the Pound.

Ahead, the economic data is set to pick up substantially in the form of the UK 3Q GDP figure. In a period encompassing July 1st to September 30th, this data will offer the first comprehensive assessment of the economy post-Brexit (June 23rd). Expectations are set low with a modest 0.3% expansion forecast for the period (previous was 0.7%) and a hold at the second quarter’s 2.1% annual pace. Barclays will also offer up its 3Q earnings figures following this past session reports by Lloyds and GlaxoSmithKline.

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