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Brexit - speed bumps, slopes, & cake
  • After 12 months in the departure lounge, our Brexit negotiations have started. Political fall-out has added an extra ‘speed bump’ on a journey likely to take way longer than the two years hoped for.
  • Mr Hammond’s more conciliatory tone is welcomed, but is inevitably clouded early on by ‘cherry picking’. Our negotiations could take years to potentially end up back close to square one, in terms of striking the free trade agreement that most parties want.
  • When the deal is struck it will need Parliamentary approval, & be subject to a ‘phasing in’ period. And this after sign-off by our 27 EU peers. Striking a US deal by the 2022 UK election needs talks to start now - well before Mr Trump’s 2018 ‘Mid-Terms’ campaign.
  • Which leaves the BoE watchful that a weaker pound doesn’t keep pumping inflation. The MPC could feasibly reverse its 25bp ‘safety net’ rate cut from last August. But, in the absence of a recovery in real wages, we doubt they would hike any more aggressively.
  • Tapering their QE reinvestments would be the gentlest way to tighten. If it helps, Mr Carney may then be able to have his ‘cake’ (unhindered consumption) & ‘eat it’ (still low policy rates)...

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