Pound Holds Firm Despite Energy Price Shock as BoE Hints at Tightening

The British Pound has been holding up better than expected despite the worsening energy price shock, according to Lee Hardman from MUFG. Stronger UK growth and rising expectations for policy tightening by major central banks are driving expectations that the Bank of England will soon begin tightening policy.

Growth is expected to slow significantly in the second half of this year, similar to the seasonal pattern evident in recent years. However, July activity suggests it may not slow as much as feared.

The combination of stronger growth, rising energy prices, and building expectations for other major central banks to tighten policy have been encouraging expectations that the BoE will soon take action to begin tightening policy.