UK data to weigh on GBP

After rallying about 4% in the first three weeks of June, helped by public communication by the more hawkish members of the BoE MPC, GBPUSD fell about 1% last week and UK data should drive further depreciation this week. 

The UK rates market has significantly re-priced expectations of BoE tightening in the past two weeks to now imply about an 80% chance of a March 2016 25bp rate hike, from less than 50% chance in early June. This has reflected speeches by BoE MPC members Ian McCafferty (12 June) and Kristin Forbes (17 June) as well as an FT interview by Martin Weale (23 June), all of which sit at the most hawkish end of the BoE MPC. 

The re-pricing has also reflected the unexpectedly large pickup in April average weekly earnings to 2.7% y/y from a revised 2.3% in March. However, it is unlikely that this recent BoE communication reflects the views of the wider committee or Governor Carney. As such, only gradual GBP appreciation against the EUR and further GBPUSD depreciation as tighter fiscal policy and institutional risks weigh on UK economic growth and keep the BoE cautious.

Barclays notes:

• Our forecasts for major UK data are all below the consensus forecast. We expect the final reading of Q1 GDP (Tuesday) to be revised lower to 2.4% y/y (consensus: 2.5%) along with a larger-than-expected Q1 current account deficit (Tuesday; Barclays: GBP29.4bn; consensus: GBP24bn). 
  
  
• Manufacturing PMI (Wednesday) is likely to pick up slightly in June (Barclays: 52.2; consensus: 52.5) while services PMI (Friday) should remain at 56.5 (consensus: 57.4).