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UK: Mounting Brexit worries - ING

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 4, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    James Knightley, Senior Economist at ING, suggests that a disappointing set of business surveys suggest that the uncertainty of the Brexit vote is already weighing on UK activity.

    Key Quotes

    “The UK service sector purchasing managers’ index fell much more than expected in February, suggesting that the economy has lost momentum ahead of the 23 June referendum on ongoing EU membership. The headline index fell to 52.7 from 55.6, which was also below the consensus forecast of 55.1. When combined with falls in the manufacturing and construction PMIs this leaves the composite index at 52.8 versus 56.2 in January, which is the weakest reading since April 2013. The survey compiler suggests that this level has historically been consistent with GDP growth of just 0.3% QoQ, which would mark a slowdown from the 0.5% QoQ rate recorded in 4Q15.

    It is probable that a combination of global growth concerns and Brexit worries are starting to act as a drag on the UK economy. That said, the data flow is mixed in general with a sizeable fall in consumer confidence being offset by what was very strong retail sales spending in January. The labour market is also holding up so it is difficult to draw firm conclusions right now. Nonetheless, we feel that as the referendum approaches, businesses will become more cautious on hiring new workers and implementing investment plans, which will likely see growth rates slow.

    Should the UK vote to remain an EU member we are likely to see a bounce-back in sentiment and activity in 3Q and 4Q16. However, should it vote to leave then the near-term growth backdrop will deteriorate even further, which will likely result in renewed Bank of England policy stimulus and add to the downside risks for sterling.”
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