GBP: UK Q2 GDP in focus

Barclays notes:

In an otherwise quiet week for UK data and events, focus will centre on UK Q2 GDP (Tuesday); we forecast 0.6% q/q growth, slightly below the consensus forecast of 0.7%. Wednesday's lending report may also gain some attention. We expect mortgage approvals to edge up slightly in June to 66.5k (consensus 66.0) and mortgage lending to increase to GBP2.2bn (consensus: GBP2.0bn) in line with BBA data released on Friday. Meanwhile, we and consensus expect consumer credit to increase GBP1.1bn.

GBP FX and rates have been volatile over the past month, driven in part by the media's more hawkish reporting of recent BoE communication (for example, Carney's comments at the BoE Inflation Report Treasury Select Committee hearing) and disappointing economic data (for example June retail sales). Overall, we remain comfortable with our view of modest GBP outperformance versus the EUR but material depreciation against the USD. 

The BoE MPC vote for rate rises remains 9-0 against. While some members (Martin Weale, for example) are moving closer to a voting for tighter policy, inflation remains non-existent and will likely only reach 0.3% y/y by year-end. As such, it will likely take until Q1 next year before the majority of the committee agree to hike the Bank Rate. Furthermore, tight fiscal policy and downside risks to business investment and confidence related to the EU referendum mean that the likely pace of policy tightening will be extremely moderate once it begins.