“After this week’s general election, the next hurdle for UK markets is next week’s Bank of England decision,” note TD Securities analysts. “Macro risks are still high in both directions, but downside risks are rising relative to upside potential.”
Key quotes
“On the upside, if the election produces the stable Conservative majority that’s expected, then we’ll get some clarity around Brexit, potentially unleashing some pent-up demand in 2020 as uncertainty recedes. Fiscal policy will also support growth.”
“On the downside though, leading indicators are still pointing to a deterioration in the labour market, and optimism from political uncertainty may lead to tighter financial conditions than the growth outlook warrants.”
“UK data has surprised to the downside consistently since the last BoE meeting, and this morning’s GDP data revealed 3 straight months of negative/zero m/m growth for the first time since 2009. But we still expect the MPC to patiently await the post-Brexit data before shifting its stance, and stick to last month’s two-sided guidance. It will likely be another 7-2 vote, as Haskel and Saunders’ reasons for voting for easing still stand.”
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