UK: GBP can fall further, next week’s PMIs likely soft - BNPP

Research Team at BNP Paribas, suggests that the next week’s UK PMI numbers are expected to be on a soft side while GBP seems still vulnerable to the downside risks.

Key Quotes

“UK will receive an update on the health of its manufacturing sector post-Brexit next week, with the manufacturing PMI to be released Monday and production data to be released Friday. So far, data have suggested that various worst-case scenarios in the aftermath of the referendum have not materialised. However, MPC members have signalled that they continue to expect a need for further easing later this year, and our economics team expects data to paint a picture of an economy that has effectively stalled.

We view the GBP as still vulnerable, and expect GBPUSD to hold below 1.30 despite broader USD weakness. Market expectations for Bank of England easing continue to look too conservative in our view, with 5bp of rates cuts priced for the November meeting versus our economists’ expectations for a 15bp cut.

Ahead today, we agree with market consensus that Q2 GDP will likely be revised up to show 0.6% q/q growth from 0.4% originally reported. However, this pre-referendum data is old news at this point.”