Prime Minister May’s indication at the weekend Conservative party conference that the UK will invoke Article 50 of the EU Treaty by the end of Q1 2017 seems to have refocused markets on the considerable uncertainty that lies ahead. In her comments she rejected the notion that the UK could select an existing model, such as Norway or Switzerland now employ, and stressed that a unique relationship with the EU would be negotiated.
Our economists note that the position may add to concerns about the possibility of a hard Brexit given the difficulty of reconciling controls on immigration with full access to the single market. Meanwhile, in separate comments, the UK Chancellor appeared to rule out significant fiscal stimulus to smooth the transition, leaving the economy reliant on further BoE easing if data begins to slow again.
We remain broadly bearish on the GBP even after reaching our 1.28 target in GBPUSD.
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