GBP: Downside Risk Into BoE; Dips A Buy Loner-Term
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Weaker business activity may make a case of the central bank considering a slightly more cautious stance, which may be reflected in lower growth projections. According to our economists, the longer-term inflation outlook should remain stable with prices expected to return to target within two years. As weaker conditions may be largely related to Brexit fears, they may still be regarded as temporary.
Weaker manufacturing sector related business activity, for instance, was due to delayed investment decisions ahead of the EU referendum. This is at least suggested by Markit.
Although a slightly more dovish assessment could trigger some downside, we believe that elevated speculative short positioning should still limit such risks.
From a broader angle, and as we expect the UK to remain part of the European Union, we believe that dips should still be bought.
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