Political consensus and Sterling value
UK manufacturing data disappointed today, falling 0.9% versus an expected rise of 0.2%. In spite of this Adam Posen of the MPC has been on the wires with some fairly bullish comments overall for the UK.
Although he made the point that the trade deficit is unsatisfactory he remains confident that it will narrow. He highlighted the fact that deflation has been avoided, inflation expectations remain anchored and speaking of the MPC he said, “we believe growth will pickup from here”. With regard to Sterling, Posen added, “Right now, they’ve (markets) got bored with beating up Greece, they have to find something else to do so they’re turning on us…I am paid totally in pounds…I’m pretty comfortable with that”. With regard to the hung parliament question he added, “All three major parties have made it clear they are going to pass some kind of austerity budget. The details do matter, but they’re all going to be big enough to get us on the right track.”
This view of the UK political question accords well with our own. The election remains the big unknown for markets, a realisation among market participants that regardless of the outcome there will be a strong emphasis on fiscal responsibility should be an important catalyst for Sterling sentiment to turn. At that time focus should shift to the tremendous value opportunities available in Sterling.