What is particularly interesting is that the market’s focus was on the GDP figure and the fact that business investment was below expectations meant little. In the opening remarks of the Inflation Report Press conference, Governor Carney emphasized the issue of absorbing slack in the economy, and stated that a strong and sustained recovery is needed in order to achieve this. Carney also stated that “A sustained recovery requires a revival of business investment”. Baring this in mind, it seems strange that the market’s attention is not being put on the fact that business investment growth is still slacking. The need for more robust growth has come from the horse’s mouth, yet the market feels the need to focus on a GDP reading that only confirmed what we had already known.
It is fair to acknowledge the rise in business investment and consider it positive, but surely the market needs to draw their attention towards the need for this type of investment to gain traction. A lot of sterling’s recent strength has been on the back of the possibility of a rate increase in 2015. We also know from the inflation report that we could have a situation where unemployment has reached the 7% benchmark, but the BoE maintains loose monetary policy. If the sterling bulls want to see a rate increase by 2015, they may want to pay a little more attention on the progression of factors such as business investment, which may help to gauge how sustainable the recovery is and therefore when the BoE will be likely to raise rates.
Sasha Nugent
Currency Analyst
