The British pound has stabilized and posted slight gains in the Wednesday session. In North American trade, GBP/USD is trading at 1.2660. On the release front, the UK deficit narrowed to GBP 6.0 billion, better than the forecast of GBP 7.3 billion. The BoE’s chief economist, Andy Haldane, made headlines when he said he supports raising rates later this year. In the US, Existing Home Sales improved to 5.62 million, beating the estimate of 5.54 million. On Thursday, the US releases unemployment claims.
There were more developments out of the BoE, as policymakers continue to make public statements as to whether the BoE should raise interest rates or not. On Wednesday, MPC member Andy Haldane said that the bank might need to raise interest rates soon, in order to ward off inflation. Haldane noted that the British economy continues to grow and the labor market remains strong. Haldane was not one of three MPC members who voted for a rate hike last week. The markets misread the amount of support for a hike, predicting that the vote to hold rates would be 8-1. Haldane said that he had voted with the majority due to concerns over the recent election and weak wage growth.
BoE Governor Carney was unusually blunt in a speech in London on Tuesday, when addressing interest rate policy. Carney poured cold water on raising interest rates, saying that "now is not yet the time to begin that adjustment". The pound reacted sharply to Carney’s comments, losing 0.91% in the Tuesday session. With the economy having weathered the Brexit storm quite well, there have been calls for the BoE to raise rates, which hasn’t happened in over a decade. The pressure was ratcheted higher last week, when three of nine MPC members voted to raise rates. Clearly, Carney felt the need to act and resist the calls for higher rates. The cautious Carney noted that consumer spending had dropped, and that more time was needed to evaluate how the economy reacted to the "reality of Brexit negotiations". Carney finds himself in a corner, as he is dead set against hiking rates, but the weak pound has pushed inflation to unhealthy levels, as CPI rose 2.9% in May. If Carney holds back on any rate increases, inflation could continue to climb.
