UK: Economic expansion to continue if “hard” Brexit does not occur - Wells Fargo

According to analysts from Wells Fargo, some “soft” economic indicators suggest that economic growth has remained positive thus far in Q3. They see that the economic outlook would darken if a “hard” Brexit were to occur.

Key Quotes: 

“Real GDP in the United Kingdom rose 0.4 percent in Q2 after a marked slowdown earlier this year. Several sectors of the economy performed solidly in the quarter, with notable increases in consumer spending and business fixed investment.”

“While trade proved a drag on Q2 GDP growth, solid global growth through the remainder of this year should be supportive of a rebound in external demand.”

“Brexit remains the elephant in the room, as uncertainty has increased in recent weeks on whether the U.K. and European Union can reach an agreement on the future of their economic and financial relationships by the March 2019 deadline. A “hard” Brexit, which could occur if negotiations break down, poses a significant downside risk to our outlook for the U.K. economy. For now, our forecast of continued economic growth in the U.K. is contingent on the fact that a “hard” Brexit does not come to fruition. Should these assumptions remain intact, we look for the BoE to continue to slowly tighten policy in the coming quarters as economic growth also picks up.”

“The British pound has depreciated modestly versus the U.S. dollar since April as the greenback has enjoyed general strength versus most currencies. Looking forward, our currency strategy team expects that sterling will slowly trend higher versus the dollar in coming quarters. Although the U.S. Federal Reserve will likely continue to tighten monetary, rates hikes by other central banks, including the BoE, should lend support to most foreign currencies, including the British pound.”

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