UK: Large twin deficits means GBP/USD may now trough out at 1.15 - ING

Research Team at ING, notes that the UK’s Autumn Statement consisted of a series of small steps in the right direction, though ING do not see these as having any game-changing implications for our bearish GBP outlook.

Key Quotes                           

“The launch of a £23bn productivity investment fund, plans for a wide-range of infrastructure investment and the intention to lower corporate taxes to 17% are welcome policies to get the economy “match-fit” for Brexit, but the government will ultimately have to invest more if they want to stand a chance of winning. The OBR estimated potential growth in the UK to be 2.4ppts lower, in part due to lower trend productivity growth, while around half of the extra £122bn net borrowing by 2020-21 is a consequence of Brexit. We believe the UK’s large twin deficits (fiscal and current account) should not be underestimated as they will continue to exert downward pressure on GBP over the medium-term. Should the dollar remain strong, risks are that GBP/USD troughs out at 1.15 in 1H17.”