The Queens Speech

21 June, 2017

Simon Eastman

As the sun shone for the UK again on Tuesday, Sterling got left in the shade as Mark Carney stated categorically, we would not be seeing UK interest rates go up anytime soon.

While this is good news for the majority of homeowners in the UK, whose pockets are already stretched due to high inflation, increased costs and stagnant wage growth, it was bad news for the pound. Last week, we saw sterling gain slightly as the Bank of England’s MPC vote split to raise rates, went from 7-1 against raising, to 5-3. This indication gave the pound a boost as investors saw this as an opportunity to buy sterling for the future potential of a better yield on investment if rates went up. But in a speech at Mansion House yesterday, Carney announced it was the wrong time to be thinking of increasing, with low wage growth and the implications of Brexit on the economy still too unclear to make a judgement.

The comments saw the pound drop across the board, wiping a cent off against both the euro and the US dollar within minutes. With no UK data at all and only a few EU and US stats to contend with, the day was sentiment led, with investors placing their faith elsewhere. Further gloom came as reports circled of potential credit rating downgrades for the UK by the S&P agency adding to the pound’s woes alongside concerns over the Queens Speech today, as Theresa May has still not tabled a deal with the DUP meaning as it stands, she would have little chance of passing any of their proposed legislation anyway.

So today the Queen will deliver the speech prepared by the current Government and its expected to be a sparse one, with many of the major controversial points, like the so-called dementia tax, missing so as to not rock the boat while trying to agree a deal with the DUP so when they reconvene after the summer break, they have a chance of actually getting on with delivering their future plans for Britain. The DUP in the meantime will not be making it easy to agree on a deal, knowing full well they pretty much hold all the cards, while the Irish PM and Sinn Fein have made it perfectly clear, they oppose a deal in the first place, citing concerns of destabilising the peace process.

As well as the speech, the EU hold a non-monetary ECB meeting and the UK release public sector net borrowing figures this morning, ahead of US new homes data after lunch and the RBNZ interest rate meeting and policy statement this evening.

It’s likely to be a tough day for Theresa May and the conservatives as all eyes rest firmly on the speech and their continued attempts to table a deal with the DUP while markets then have to wait a week while the debates go on inside Parliament regards the conservatives plans and whether they’ll give any support. For those with a currency transfer to make, this next week is going to be a rocky one, so it may well be worth locking in your deal sooner rather than later to avoid the inevitable pitfalls.