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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, General

Instead of the usual situation of the US market driving sentiment, I found it interesting that the United Kingdom received a bit of focus last week.

Politics has taken a twist in the land of Shakespeare, Churchill, Sean Connery and Harry Potter with a referendum on whether the UK is to stay in the EU scheduled for 23rd June causing a lot of concern recently. The result being a pounding (pardon the pun) of the currency (refer chart).

The ruling Conservative party has been split, with PM Cameron urging voters to stay inside the European Union while maverick London Mayor Boris de Pfeffel Johnson is promising to exit the EU. Current polling shows 51% of voters are in favour of remaining in the EU, a number that has fallen in recent weeks.

UK interest rate markets have pushed back expectations for the Bank of England to hike rates quite sharply. At the end of 2015, markets had expected a rate hike by November 2016, which has now been pushed out until 2020. There is now much uncertainty for UK businesses, particularly those involved in EU trade.

Potential spill-overs for markets would include weakness in bordering markets if other countries decide to renegotiate terms with the European Union.

The Pound versus the Euro

cash rate graph

Source: Rural Bank

 

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