Forex Flash: GBP inflation is secondary to economic recovery in UK – ANZ

FXstreet.com (Barcelona) - Concerns about sterling’s weakness and inflation are subordinate to the need to stimulate economic activity, fix the banks and get the economy going. According to the ANZ Research Team, “If there are no meaningful demand-pull or cost-push drivers of inflation, then any rise in the CPI as a result of sterling's slide will be temporary and the BoE can ease policy further.”

The Chancellor did stress the drag on growth from net trade. A real depreciation in the exchange rate would be helpful in this regard. The fact that the Treasury will be discussing possible extensions for to the Funding for Lending Scheme with the Bank of England means pressure is on the banks to lend. There is no point in saying we won't do more QE because it's pointless as certain high street banks are deleveraging. That is not a definition of monetary activism.

If sterling, therefore, has recovered in part because of anxiety over inflation and BoE policy being on hold, then a re-assessment of these considerations is necessary. “We continue to regard sterling as having a role to play in supporting economic activity and feel the trend remains down despite the current squeeze.” the team adds.