UK: Marked slowing of the economy is believed to have taken place - BBH

Research Team at BBH, suggests that the UK reports its first estimate of Q3 GDP a day before the US and a marked slowing of the UK economy is believed to have taken place in the three months after the referendum.  

Key Quotes

“Most of the weakness seemed to be concentrated in July.  The British economy is expected to have expanded by 0.3% in Q3 after 0.7% growth in Q2.  The year-over-year pace will stay deceivingly stable at 2.1%.  A substantial decline will likely be experienced this quarter as Q4 15's 0.7% expansion drops out of the measure.

Expectations for a follow-up rate cut at the early-November MPC meeting have eased, but it has not done much for sterling.  For the better part of two weeks, since the flash crash, sterling has been largely confined to a $1.21-$1.23 trading range.  While the shift in Fed expectation may not have been particularly helpful for sterling, the prospect of a hard Brexit is the more potent force.

European officials, including Tusk, the President of the European Council, have made two things clear.  There are no negotiations until the UK has standing, which means until Article 50 is invoked.  Any Brexit will be a hard Brexit to the extent that it means that will not have unfettered access to the single market if it insists on limiting what Europeans call free movement, which is an exaggeration, especially for non-Schengen members.

It is fine and good that Prime Minister May can say Brexit means Brexit, but by allowing the inertia of the victorious Leave camp to dominate the negotiations, she must accept their narrative.  The victory was by the slimmest of margins for such a momentous decision.  She could have prioritized the preserving the UK standard of living and way of life.

The UK is still a member of the WTO, which keeps it integrated into the system of free-trade.  But even with manufactured goods, for which the WTO is strongest, the UK is vulnerable.  Japanese and German auto manufacturers are threatening to leave the UK.  The UK will ultimately be poorer, and investors have already written down the value of all UK assets by 20% in dollar terms and more than 15% in yuan terms.”