UK: Brexit concerns remain - Westpac

Feb’s renewed Brexit talks appear to be more problematic, displaying vulnerability in May’s minority government, according to Tim Riddell, Research Analyst at Westpac.

Key Quotes

“Markets had recently romanced the potential for a soft, pro–trade, GBP-positive Brexit. This seems decidedly less likely. Tory political schisms may lead to EU-27 frustration and refusal to concede and so weigh on GBP in the absence of any breakthrough.”

“UK PMIs are undershooting Eurozone, notably in UK’s dominant service sector. The last BoE agents’ report noted a slip in service sector employment intentions. if this is repeated, it may impact the MPC’s recently more upbeat assessment of UK in light of their repeated Brexit concerns. UK households remain under stress. Within a more upbeat BRC (retail) survey, nonessential activity was weak. If CPI does not slide, negative real income will impact the retail and service area further.”

“Despite more hawkish tones from MPC members recently, risks of Brexit, waning service sector confidence and crimping of household finances should keep BoE on hold and weigh on GBP.”