UK: Politics guiding the economy - Rabobank

UK Prime Minister Theresa May has a lot of work to do if history is to remember her as a successful leader, suggests the research team at Rabobank.

Key Quotes

“Speaking in the House of Commons on Monday Mrs May reassured lawmakers about Brexit negotiations saying that there is a “degree of confidence” that sufficient progress will be made before the next EU summit scheduled in December. At the same time when May was making an attempt to inject a dose of optimism, EU Commission President Juncker said that Brexit is a “tragedy” and added that the UK must agree on a divorce bill before trade talks can start.”

“As if Mrs May’s position within the government was not already looking shaky, she was described as “despondent” during a private dinner Brexit last week with Mr Juncker and “begged” him for help, according to a story published by German newspaper Frankfurter Allgemeine Zeitung. The story was firmly denied by the European Commission, but the damage may have been done already.”

“While comments from PM May and EU’s Juncker had a relatively limited impact on sterling, EUR/GBP rose on the back of remarks from BoE’s Deputy Governor Cunliffe who reiterated that the timing of rate hike is still an “open question.” Such market reaction confirmed that sterling is sensitive to BoE’s monetary policy.The prospect of a rate hike in November is an important factor supporting sterling. That said, a 25bps hike is unlikely to be followed by another move in the near future.”

“Recently published data implied that UK consumers adopted a more cautious approach towards spending, especially on expensive durable goods. That said, the IHS Markit survey published on Monday actually revealed an improvement in households’ confidence about their finances and an increased willingness to spend on big ticket items such as cars, holidays and household large goods. This should be taken with a hefty pinch of salt, however. “The gap between rising spending and falling income may have been bridged with increased borrowing,” the report said. “Latest data also suggested easier access to unsecured debt.” Unsecured consumer credit is reportedly rising at 10%. Essentially, UK households seem to accumulate more debt to compensate for sluggish wage growth amid rising costs of living.”