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UK referendum to sour an otherwise sweet ’16? – HSBC

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 23, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) – Research Team at HSBC, notes that the UK final domestic demand (ie household and government spending plus domestic investment) grew 3.5% in the year to Q3 2015, its fastest pace since 2007.

    Key Quotes

    “We expect some slowing in the rate of domestic expansion in 2016, due to higher uncertainty related to a potential EU referendum and greater fog surrounding the global backdrop.”

    “The prospect of an EU referendum in 2016 could cast a long shadow over the economy. The government must hold a referendum by end-2017, but would like to hold it earlier. The precise timing is uncertain and will depend on when the UK and EU reach a deal on new terms of membership. If a deal was reached at the March 2016 European Council meeting, then a referendum in summer 2016 is possible. However, our working assumption is that all the pieces will not be in place until the autumn and that September 2016 might be the most likely option. If negotiations drag on, it is not impossible that there is no vote until 2017.”

    “If the global economy evolves according to our central case and the cloud of uncertainty arising from the EU referendum is not too dark, the UK should be able to maintain a robust pace of growth. We forecast GDP growth of 2.4% in 2016, unchanged from our previous forecasts. If our forecasts are correct, 2016 will still see the UK posting the fastest growth in the G7 for the third consecutive year.”

    “Strong domestic demand and a tightening labour market should finally spur the UK’s Monetary Policy Committee (MPC) into action, after leaving interest rates at 0.5% for more than seven years. Although it always seems like economists say “rates will rise next year”, this will be the first time in six years that we have started a year expecting rates to rise in that year.”
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