The July performance of sterling has been impressive, and the UK currency remains close to its highest level since late May against its US counterpart.

Sterling gained yesterday on relief that UK GDP did not shrink in the second quarter, even if the 0.2% growth recorded wasn’t exactly much to write home about. However, it fell back today following factory data produced by the Confederation of British Industry (CBI). The CBI’s index had been forecast to fall to -3, but it slumped to -10 for July, from 1 in June. In addition, manufacturers turned decidedly bearish, with more employers than before viewing future prospects as negative. With data such as this, one can hardly blame the Monetary Policy Committee for keeping rates on hold at 0.5%.

The sluggish growth means that Chancellor Osborne will come under increased pressure to find new and innovative ways to stimulate the economy, and you can be sure that tax cuts will be one of the first suggestions. Sterling is likely to continue to be the beneficiary of some inflows as investors exit the US dollar, but if US lawmakers do succeed in pulling a rabbit out of the hat then this flow could quickly reverse.