Brexit: Don’t be fooled by the prevailing calmness in sterling markets. The FTSE 250 remains about 7% below pre-Brexit levels, and the pound is still some 10% lower. A survey of 700 economists by Consensus Economics found a consensus expecting that stagflation will be the initial fate of the UK economy, and this before the UK actually breaks from the EU (which is looking like 2019 or 2020). Growth is expected to shrivel by 0.5 of a percentage point to 1.4% this year, and ebb to just 0.4% in 2017, down from the pre-Brexit estimate for 2.1%. CPI is expected to rise to 2.2% in 2017, up from 0.3% currently. The UK has already lost its triple A rating from S&P and Fitch, and Moody’s has it on negative outlook, citing that a “prolonged period of uncertainty” lies ahead. Moody’s also lowered its outlook for the UK banking system, saying is expects “reduced demand for credit, higher credit losses and more volatile wholesale funding conditions for UK financial institutions.” Much will depend on the relationship the UK hammers out with the EU, but negotiations between the UK and EU won’t start for at least another three months while the EU has made it clear that the UK cannot have unfettered access to the single market while closing its border — something that Brexit campaigners had gambled against happening.
GBPUSD has slipped to 1.3410 with 1.3500 and 1.3575 key resistance levels, EURGBP trades at 0.8270 and GBPJPY at 138.00. As it’s the last day of the month, quarter and first half of the year it was always going to be an interesting day. The ever eloquent BOE’s Mr. Carney speaks at 15:00 GMT with a post Brexit update.
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