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    UK sentiment continues to tank - MUFG Sandeep Kanihama

    Derek Halpenny, European Head of GMR at MUFG, suggests that there have been numerous sentiment readings in the UK suggesting the obvious – that there was a sudden collapse in consumer and business confidence after the confirmation of Brexit two weeks ago.Key Quotes“The latest piece of evidence came this morning with the release of a “Post-Brexit” GfK Consumer Confidence report, which revealed a drop in the main index from -1 in June to -9 with the survey conducted over the period 30th June to 5th July. The -9 reading was the weakest since December 2013 and the 8-point drop was the largest one-month decline since December 1994. There was a 15-point drop in the “Economic Situation” index for the next 12-month period, which was the largest drop since the series began in 1996. The data made available on sentiment since the referendum certainly appear convincing enough to warrant immediate action by the BoE when it meets next week to decide on monetary policy. An immediate 0.25-point cut the Bank Rate appears the most likely first action to be taken. That is well priced at this stage however and hence is unlikely to trigger significant selling of the pound.We also now have some degree of clarity on the political front with the next PM of the UK being either Theresa May or Andrea Leadsom. So this is an election between a centrist (May) and a right-winger (Leadsom) with May the clear favourite. However, if there is one lesson we should take from the referendum it is not to place too much weight on opinion polls! While the polls point to May, the Conservative membership has in the past thrown a surprise by electing the right-winger Ian Duncan-Smith (now supporting Leadsom), which was a disaster for the party.The FT reports today that the average age of the Conservative membership in 2013 was 68 and hence we should not rule out a strong performance by the more conservative right-wing candidate. Any signs of Leadsom perhaps surprising would weigh on the pound given her more aggressive stance on triggering Article 50 sooner rather than later. There would also be concerns over her experience and her ability to unite the Conservative party following the divisive referendum.”


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