UK: Economy guided by political vulnerability, uncertainty and Brexit - Westpac

BoE forecast merely two 25bp rate rises until late 2020 after their dovish hike and Brexit costs, political fragility and less fiscal room at the 22nd Nov Budget suggest that growth prospects remain considerably impaired, according to the analysis team at Westpac.

Key Quotes

“BoE’s central GDP growth projection remains low and IFS recently raised concerns that “weak” growth will restrict fiscal deficit reduction. The Budget walked a fine line given the political and financial constraints and appeased public discontent.”

“Weakening retail sales and low wage growth with firm inflation underscore the squeeze on household finances and the consumer sector.”

“BoE forecast headline CPI to peak in Oct (released at 3.0%) but the Inflation Report’s slow path to 2.1% into end 2020 will restrict any scope for easing.”

“Tory infighting keeps pressure on PM May. A tight Budget, the N. Irish govt. impasse and Brexit deadlock could tip discontent into a leadership challenge. Labour maintain a slim lead over Conservatives but, at present, it would be insufficient to ensure a majority.”