UK: Having a tough time – BMO CM

Jennifer Lee, Senior Economist at BMO Capital Markets, explains that last week has been a terrible week in the U.K., and for Prime Minister May as the suicide bomber in Manchester was a cold reminder that the terrorism scourge persists and then there is the matter of the economy.

Key Quotes

“First quarter GDP growth was slashed from its initial estimate of 1.2% annualized to 0.7%, largely on the back of weaker net trade (so much for a weak pound’s helping hand) and slower consumer spending (some of that due to higher inflation). And, the CBI reported that British retail sales fell to a four-month low in May.”

“Meantime, the general election is just two weeks away (June 8th) and the Conservatives’ lead over the Labour Party in the polls has narrowed to just 5 percentage points according to one poll, the smallest since   April 2016. Just a week ago, the Conservatives had a 9-point lead, and 18 points two weeks ago! Not helping were the headlines on the U-turns made by PM May, such as backtracking on the “dementia tax”.”

“Finally, there’s the matter of Brexit. EU leaders unanimously agreed that the exit bill would total €100 bln gross, or €55 bln-to-€75 bln net, an amount so incredibly high that Brexit Secretary David Davis has threatened to quit the talks before they even begin. The ECB’s Constantio effectively dismissed a Brexit impact on the Euro Area economy. He acknowledged that “of course Brexit is very significant for the UK, but in view of the relative size it is much less meaningful for the rest of the EU”. It will certainly not strengthen Britain’s ability to negotiate if the issue is dismissed for being not meaningful.”