UK: Politics becoming extremely tense - Westpac

According to Tim Riddell, Research Analyst at Westpac, UK politics are becoming extremely tense as the dysfunction of the Conservative minority government, due to divisive internal factions, risks a leadership challenge.

Key Quotes

“If averted, May might be able to secure some form of Brexit before the 29th March exit date. If she goes, can a new leader avoid a general election? If avoided, is there a Brexit plan that can be executed? More delays in the stumbling path towards Brexit seem likely, uncertainty will increase and weigh on GBP and UK assets.”

“Surveys for most sectors of the economy are due into next month. Any deterioration, likely tied to Brexit, would weigh on GBP. In the midst of this, UK’s annual budget is to be held (29th). Although revenue is beating forecasts, several welfare initiatives, including more NHS funding, need to be financed. Chancellor Hammond also needs to hold funds against Brexit disruption while attempting to maintain projections for fiscal improvements made earlier this year.”

“Rebounds in GBP should be sold (GBP/USD above 1.3150, GBP/AUD above 1.8400) unless there is a surprise break on the Irish border and leadership disruption avoided.”