The fallout from the Brexit vote continues to dominate headlines

Despite the Brexit vote taking place almost 4 months ago now, the outcome and its ongoing effects continue to be a major talking point and make the headlines daily.

Fans of marmite will be glad to hear that the famous spread is back on Tesco’s shelves amongst other household names, after Unilever and Tesco’s have resolved their issues. There is talk that Unilever succeeded in their price hike, which is a clear example of how the Brexit vote is effecting day-to-day life within the UK.

The Brexit also hit headlines over the weekend as plans of a legal challenge against initiating the leaving process is gathering pace. The legal bid is aimed at forcing the government to seek parliamentary approval before formally starting the Brexit process. This talk has prompted UK Prime Minister, Theresa May to announce that there will be no parliamentary vote beforehand, which has softened the Pounds value further as many have been hoping for a long drawn out Brexit process, with the UK retaining many of its existing ties with the European Union.

Yesterday Attorney General Jeremy Wright (Conservative MP) told the High Court that once the formal process of leaving the EU has begun, it cannot be revoked which is further bad news for hopes of a Soft Brexit and reiterates the often used quote of ‘Brexit means Brexit’, a saying we’re hearing often at the moment.

The effects of the weakening Pound and future forecasts

Yesterday the Bank of England’s Ben Broadbent labelled the Pound’s steep decline an important ‘shock absorber’ for the economy. He also highlighted the importance of a flexible currency in order to cope with shocks to the economy. Those hoping for Pound strength should take note that he said the BoE will not intervene to boost the Pounds value, which is why I think Sterling could continue to soften.

Sterling has fallen more than 20% against the US Dollar since the Brexit vote, and 5% through October after Theresa May outlined the end of March as a deadline for the initial invocation of Article 50.

This dramatic decline is likely to boost inflation in a way that isn’t representative of natural growth, which is why I think BoE Governor Mark Carney last week announced that the BoE will ‘tolerate higher inflation for the sake of growth’. This is likely an allusion to UK inflation hitting a higher level than the 2% currently aimed for, with Mark Carney pre-empting these results in advance to not shock the markets once the figures are released. It will also offset the need for tighter monetary policy, which could result in higher unemployment and restricted growth.

It was also announced over the weekend by a prominent think tank (the EY Item Club) that the UK economy faces a prolonged period of weaker growth as inflation rises up to 2.6% next year. They also suggested that the UK’s steady performance since the vote so far is deceptive. It expects the UK’s growth to decline to 0.8% next year as businesses adopt a more cautious approach and sentiment towards UK business wanes.

With the likes of HSBC forecasting parity for the GBP/EUR pair in 2017, I think it’s fair to say that a slowing of the UK economy is likely to have a negative impact on the Pounds value, and I think that analysts are factoring this into their Sterling predictions.

Today’s key data release

The talk of inflation concerns has come at the right time as at 9.30am today UK Inflation figures will be released for both the month and year, with the yearly figure being the one to look out for. The expectation is for 0.8% although predictions have varied slightly. We can expect to see some big moves if the figure sways from 0.8% significantly, so feel free to get in touch prior to this event if you wish to plan around it.

Markets remain volatile so its important that you stay in regular contact with a broker to make the most of any spikes. Call our trading floor on 01494 725 353.


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