UK: Fear moves from Brexit to the economy - Danske

According to analysts from Danske Bank, fears about the exit of the United Kingdom of the European Union eased during the last days, but uncertainties hit the economy.

Key Quotes:

“The first estimate of Q1 GDP growth showed that growth slowed to 0.4% q/q. Slower growth and falling employment indicate Brexit uncertainties have hit the economy. According to the OECD a Brexit would result in UK GDP being 3% lower by 2020.”

“In the financial markets Brexit fears appear to have eased further this week. In the FX market GBP gained further versus USD, while implied GBP volatility has fallen sharply. The market’s pricing of the Bank of England is little changed this week, implying around 20% probability of a 25bp Bank rate cut within the coming 12 months.”

“Opinion polls released this week have been more mixed. According to odds from Betfair the probability of a ‘Brexit’ is still 28% while Matt Singh (a political blogger who was one of the few who correctly predicted the outcome of last year’s UK general election) has assigned a 21% probability of a ‘Brexit’.

“Markets are likely to stay sensitive to comments, reports and opinion polls.”