A survey of global investors by Barclays lays bare the depth of market pessimism as the U.K. starts divorce talks with the European Union.
Torturous, drawn-out negotiations with the EU that “involve a series of delays” is the likeliest scenario foreseen by the majority of the 642 respondents, Barclays strategist Sreekala Kochugovindan wrote in a report accompanying the release of the survey on Monday. That “may in turn weigh on market sentiment,” she said.
About 64% are skeptical the exit will be orderly and expect protracted discussions to sap the value of U.K. assets, in particular the pound. Its sharp drop since the Brexit vote has cheapened the real effective exchange rate to near an historic low, and investors don't foresee a recovery to pre-referendum levels.
The pound absorbed another blow from the Bank of England Tuesday when Governor Mark Carney said he's still worried about the impact of Brexit on growth, and signaled it may be to soon to withdraw stimulative policy. The British currency lost 0.9% to $1.2617 as of 3 p.m. in London.
A survey of economists by Bloomberg has the currency strengthening more than 5% to $1.33 by 2020.
Consumer prices are picking up, presenting policy makers with a classic stagflation dilemma, according to Charles Diebel, the London-based head of rates at Aviva Investors. They're more likely to sacrifice inflation targets and the pound than douse growth with higher rates, he said.
“Considering the amount of risk that faces the U.K economy with the whole Brexit scenario and the uncertainties that go with that, the worst thing they can do is artificially slow the economy to try and control inflation,” Diebel said in an interview with Bloomberg TV. “Our view is that policy makers will look through the inflation risk.”
Bloomberg News
Copyright 2018 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Complete your profile to continue reading and get FREE access to Treasury & Risk, part of your ALM digital membership.
Your access to unlimited Treasury & Risk content isn’t changing.
Once you are an ALM digital member, you’ll receive:
- Thought leadership on regulatory changes, economic trends, corporate success stories, and tactical solutions for treasurers, CFOs, risk managers, controllers, and other finance professionals
- Informative weekly newsletter featuring news, analysis, real-world case studies, and other critical content
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the employee benefits and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
