Intraday Market Thoughts

One year after Brexit Referendum

by Ashraf Laidi
Jun 23, 2017 14:09

One year after Britain voted to leave the European Union, the UK's woes have largely been manifested by political instability, but the economic challenges could soon be catching up.

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One year after Brexit Referendum - Post Brexit June 25 2017 (Chart 1)

Ever since the Conservatives' disappointing election performance, we no longer PM Theresa May's favourite Brexit mantra that “no deal is better than a bad deal”. Such severe loss of bargaining power with UK MPs and the EU is changing Theresa May's tune, which raises the likelihood for a “softer” Brexit, hence, temporarily supportive for the British pound, but challenging for the FX translation FTSE. Since last year's referendum, the FTSE100 is up 16% and 27% from Brexit low. GDP growth plummeted to a 3-year low of 0.3% in Q1 2015 (the quarter before the referendum), rebounded to 0.7% in Q4 2016, but a renewed slowdown in Q1 2017 to 0.2 raises questions about the health of economic activity ahead.

Earnings remain the worry as real wages (after inflation) turned negative to -1.2%, from 2.9% in summer 2016, suggesting UK consumer power would be the last item to help in any recovery.

Any detailed macro-economic analysis does not warrant more attention as the start of Brexit negotiations and UK election uncertainty have yet to show in the data. UK Bankers and most services industry will be looking (hoping) at the likelihood of staying in the Single Market to preserve passport rights, while most manufacturers require the continuation of the Customs Union.


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