UK: Weak GBP to accelerate CPI over coming months - BNPP

Research Team at BNP Paribas, suggests that today brings the first major data release covering the post-referendum period in the UK, with July CPI numbers to be published.

Key Quotes

“The sharp weakening in Sterling post referendum (the GBP TWI is down 18% y/y) is expected to boost UK CPI over time. However, it is still too soon to see impact in the July numbers and we expect the headline y/y rate to hold at 0.5% for now.

The GBP has fallen to new three-year lows vs. the EUR and to early-July lows vs. the USD. Our metrics highlight positioning in the GBP is increasingly stretched. However, we think the process of post-referendum adjustment in the pound still has further to go, particularly vs. the USD, and we expect GBPUSD to reach 1.24.

Meanwhile, a recovery in the German ZEW from post-Brexit lows should reinforce the transitory impact of Brexit on sentiment outside the UK.”