Brexit consequences: Modest recession in the UK - Wells Fargo

According to analysts from Wells Fargo, uncertainty related to the Brexit referendum is likely to lead to a modest recession in the UK. Regarding the pound, they warn that it is likely to weaken further against the US dollar.

Key Quotes:

“In our view, uncertainty related to the economic relationship that the UK will have with the EU future will cause investment spending, which has already weakened, to contract in coming quarters. Employment in the affected sectors likely will weaken, which will weigh on consumer spending. The result should be a modest recession in the UK.”

“We think that expectations of the imminent death of the EU are greatly exaggerated. In sum, we look for a modest recession in the UK, but we expect that the global economy will continue to expand, albeit at a sluggish pace.”

“We believe that the Bank of England will provide further policy accommodation in an effort to combat the downturn in the economy. We also look for the British pound to weaken further vis-à-vis the U.S. dollar in coming quarters.”

“We look for the Federal Reserve to lift its target range for the fed funds rate by 25 bps by the end of the year and by 50 bps in 2017. Further policy accommodation by the BoE in conjunction with policy tightening by the Fed, albeit at a slow pace, should weigh on the value of sterling versus the greenback.”