UK – Kafka’s CastleReport Date: 9th February, 2017
Brexit is about to begin in earnest. Yet the paucity of detail in the UK government’s White Paper betrays the weakness of its negotiating position. The EU will want to make it hurt. Amid this uncertainty, the UK economy’s dependence on household consumption will be sorely tested. Rising inflation in response to earlier GBP-weakness is already eating into purchasing power. The overly-sanguine Bank of England could quickly find itself in a serious policy bind. We expect sterling to resume its slide against both the dollar and the euro. A move to parity against the euro is on the cards for 2018. The UK yield curve should also continue to steepen.
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