The UK Consumer finally falters EURGBP to rise

EURGBP, Daily                  

One year on from Brexit and I was wrong about a recession in the UK by the end of 2016. A little overreaction in my immediate disbelief and disappointment to such a divisive outcome.

It was consumer spending that principally kept that at bay. Now that the consumer has cracked, the pound remains deflated, productivity moribund and wages stagnant, the inevitable has happened. Inflation has spiked and is likely to climb, even with the slowdown in global oil prices. The UK remains a net importer and the debt keeps on keeping on. Exports and the FTSE100 may be at records but that is simply a veneer and correlation to the collapse of the pound.

A minority government, negotiating in the dark with the second biggest trading block in the world, not having negotiated anything for over 40 years is not in a great place. There is the newly empowered Macron/Merkel alliance on one side versus May and her boys on the other. Even with an upset in the September German election Merkel’s opponent is long time Europhile Martin Shultz. The 12 seat majority “Strong and Stable – Brexit means Brexit” UK government is now dependent on a small regional party that, according to the FT this morning, will cost the UK the equivalent of 59 billion pounds.

The level of political uncertainty may (excuse the pun) have cooled a touch but the longevity of minority governments in the UK has a limited and poor history. The GBP may (again?) be off its knees but the outlook remains uncertain. Europe, the EU and foreign policy has been the downfall of many a UK leader from Eden to Thatcher to Major and beyond. As the UK press in unison decries the governments deal to hang on to power and murmurs rise again for May to stand aside for the more conciliatory Hammond as a “Go-Between” PM consumer and business confidence continues to deteriorate.

Today’s six month Financial Stability Report and Mark Carney’s speech will have added emphasis as the BOE juggles the economic pressures amid the political whirlpool.


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Stuart Cowell

Senior Market Analyst


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