Brexit crisis will hit confidence and activity in the UK - Westpac

Research Team at Westpac, suggests that as far as Brexit is concerned clearly much will depend on who emerges as the new Prime Minister and what policies he or she pushes for the UK.

Key Quotes

“Rather than attempting to push legislation through the House, the new Prime Minister could justifiably go straight to a general election (though Theresa May has pushed back against that idea).

While all the above deals with events that may happen at some point in the future, the path of which is very uncertain, we argue that Brexit is not a simple process of executing article 50 and walking away.

UK Work and Pensions Secretary Stephen Crabb described the UK’s lot as “a set of problems of almost mind boggling complexity”. The obvious point to make here is that there is a wide range of ways that the Brexit story can play out.

We favour the endgame of the Brexit referendum being elections. In this scenario, Brexit does not happen this year. It may never happen. However, for us to be correct on this, we would need to see a strong pro remain leadership develop in the Labour leadership battle while a strong pro Brexit conservative leader would clearly see us revising our endgame probabilities.

If we are correct, this suggests that financial markets can continue recovering some poise and the GBP may bounce back above 1.35 towards 1.3650. However, the Brexit crisis will hit confidence and activity in the UK and the BoE will act. As we move towards an extremely uncertain end Q3 and early Q4, we see further weakness in the pound.”