Imprudent to solely blame Brexit for BOE cuts; UK fundamentals to divulge intricacies of British business

The divergence in the UK and US monetary policy expectations drove GBP/USD lower over the past week. Having briefly touched above 1.3350, the pair tumbled below 1.31 on Friday following the US data.

The Bank of England’s decision to cut interest rates to 0.25 per cent is a significant policy consequence of the EU referendum. Or, rather, it is a significant policy consequence of Project Fear.

If Britain is indeed experiencing a dent in consumer confidence then it is not down to Brexit – for that hasn’t actually happened yet. Rather it is due to the pessimism of the previous government, the Labour Party, Barack Obama, global institutions, sections of the media and, of course, the Bank itself.

But Brexit voters have nothing to apologise for. They can point out that the situation is worse in parts of the EU: the rate cut does not compare to the drama of Italy’s bank crisis. They can also note, as the International Monetary Fund warned last month, that the pound has been overvalued for a very long time and that its recent fall was inevitable.

In short, Britain suffers from long-term challenges linked to the state of the international economy, challenges that would be there with or without the EU referendum. Britain is still in a relatively good position to deal with those problems because the last government did its best to consolidate the country’s financial position, beginning the long, hard slog of welfare reform and corporate tax reduction.

UK PMIs have disclosed more insights about British business environment; manufacturing PMI has missed the forecasts to disappoint the streets which in turn factored in GBP slumps. The diffusion index based on surveyed purchasing managers in the manufacturing industry has actual prints at 48.2 versus forecasts and previous flashes at 49.2 and 49.1 respectively. While construction PMIs prints upbeat numbers, 45.9 against forecasts at 44.2, but were dip from previous 46.0, whereas service PMIs were unchanged at 47.4.

For this week, we reckon manufacturing production is the major focus which is forecasted to flash at 0.0%, the change in the total inflation-adjusted value of output produced by the manufacturer would probably and last week’s PMIs indicate the roadmap for UK businessmen.

We continue to attract huge investments from overseas – and there is no evidence yet of capital flight from the UK, despite Remainders crying wolf. It is to this weight of paranoia that Mark Carney has felt forced to respond.