Elu­sive Brexit clar­ity meets sober eco­nomic re­al­ity

Kuwait Times - - BUSINESS -

Last time Bri­tish Prime Min­is­ter Theresa May re­turned from a walk­ing hol­i­day, she called what turned out to be-for her-a dis­as­trous elec­tion.

Not this time, it is as­sumed. But fi­nan­cial mar­kets and an ea­ger public hop­ing she can pro­vide some Brexit clar­ity will prob­a­bly have to bal­ance it with an­other week of sober­ing eco­nomic re­al­ity. Less than 20 months out from Bri­tain’s March 2019 exit date from the Euro­pean Union, May’s govern­ment has yet to agree on what kind of di­vorce it wants, let alone make any mean­ing­ful progress on the terms with EU coun­ter­parts. Some de­tail may come with London ex­pected to pub­lish a num­ber of po­si­tion papers set­ting out its ne­go­ti­at­ing stance on a range of is­sues ahead of the next round of talks be­tween ne­go­tia­tors in the last week of Au­gust. Whether or not they paint a clearer pic­ture of post-Brexit im­mi­gra­tion, trade and reg­u­la­tion re­main to be seen-as does the re­ac­tion of the EU it­self.

But the lat­est eco­nomic snap shots next week of wages, re­tail sales and in­fla­tion will prob­a­bly un­der­line the eco­nomic chal­lenge grad­u­ally build­ing up. Econ­o­mists polled by Reuters ex­pect to see in­fla­tion tick up to 2.7 per­cent when fig­ures for July are re­leased on Tues­day be­fore peak­ing at 2.9 per­cent in the last quar­ter of 2017. By con­trast, labour mar­ket data on Wed­nes­day will show how far pay in­creases lagged ris­ing prices. The data is pro­jected to show 1.8 per­cent year-on-year growth for to­tal wages in the three months to June.

Thurs­day’s re­tail sales re­port, mean­while is equally as un­likely to brighten econ­o­mists’ view that the world’s fifth largest econ­omy will ex­pand by 0.3 per­cent a quar­ter on av­er­age over the com­ing year.

That com­pares with 0.4 per­cent in the EU coun­tries that use the euro, a trend likely to be con­firmed by next week’s sec­ond quar­ter gross do­mes­tic prod­uct re­leases for Ger­many, Italy and the euro zone as a whole.

“We ex­pect the next round of key UK data re­leases to be the fi­nal nail in the cof­fin for a 2017 Bank of Eng­land rate hike,” Vi­raj Pa­tel, currency strate­gist at ING, wrote in a note.

“While higher in­fla­tion fig­ures may keep lin­ger­ing hopes (for a rate hike) alive, the slow­ing trend in con­sumer ac­tiv­ity, as well as un­cer­tainty over the de­gree of slack in the la­bor mar­ket, should keep the hawks at bay.”

The Bank of Eng­land cut in­ter­est rates to a record low 0.25 per­cent in the months fol­low­ing last year’s Brexit vote and they won’t be lifted until 2019, a Reuters poll fore­cast on Thurs­day, a week af­ter a Brexit-wary BoE cut fore­casts for growth and wages.

Nafta ne­go­ti­a­tions

Amid a sim­i­larly packed US eco­nomic cal­en­dar, talks also get un­der way on the North Amer­i­can Free Trade Agree­ment be­tween the United States, Mex­ico and Canada with mar­kets keep­ing an eye out-mainly on U.S. Pres­i­dent Don­ald Trump’s Twit­ter feed-for fresh rum­blings on trade pro­tec­tion­ism.

Rene­go­ti­a­tion, or the ditch­ing, of NAFTA was a key cam­paign promise of Trump’s, who fre­quently called the 23-year-old trade pact a “dis­as­ter” that has drained US fac­to­ries and well-paid man­u­fac­tur­ing jobs to Mex­ico.

Mex­ico’s econ­omy min­is­ter told Reuters on Tues­day that he saw a 60 per­cent prob­a­bil­ity that talks will be wrapped up by a soft end-ofyear dead­line, but that noth­ing was cer­tain.

The talks be­gin on Wed­nes­day, the same day min­utes for the Fed­eral Re­serve’s last pol­icy meet­ing are pub­lished, giv­ing an in­sight into whether pol­i­cy­mak­ers were in­creas­ingly split on the out­look for in­fla­tion last month.

Fed chiefs will have plenty to chew on in real time with re­tail sales numbers for July due out on Tues­day and con­sumer sen­ti­ment and man­u­fac­tur­ing sur­veys to fol­low later in the week. “One ques­tion for the con­sumer back­drop is whether we are see­ing any squeeze in con­fi­dence from the lat­est po­lit­i­cal chaos in Washington,” said In­vestec econ­o­mist Vic­to­ria Clarke. Else­where, Ja­pan also re­ports GDP for Q2 while there is a flurry of re­leases from China on Mon­day with re­tail sales and in­dus­trial out­put set to be keenly watched af­ter last week’s dis­ap­point­ing trade data raised con­cerns over global de­mand. — Reuters

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