(26 JANUARY 2018)DAILY MARKET BRIEF 2:Britain’s economy remains resilient for now

Recently providing December 2017 CPI Y/Y at 3.0% (on line with expectations), December Retail Price Index at 278.1 (consensus: 277.6), December PPI at 0.4% (consensus: 0.2%) and November Unemployment Rate at 4.3% (lowest rate since 1975 and maintained for three months in a row), UK is presenting strong economic data and remains in a comfortable position lately: equities rather present steady numbers (FTSE 100: +20.16% since referendum and -0.42% YTD; FTSE 250: +18.39% and -0.77% YTD); the GBP/USD pair is almost at its level before Brexit referendum (-4.94% since its fall in June – July 2016, at 1.42) and stays admissible for GBP/EUR (-12.73% since referendum, at 1.14), providing valuable exchange rate pass-through advantage; inflation is also stabilizing for the first time in six months (valued at 3.0% in 2017); on the other side however, we observe a sharp decrease in UK GDP growth on a Y/Y basis, valued at 1.70% as of September 30th 2017.

Officially leaving the European Union in March 29th 2019, plan that was confirmed yesterday by Philip Hammond, Chancellor of the Exchequer at the WEF, UK is facing serious difficulties in the coming Brexit negotiation. Firms in the banking industry are also hesitant as to shifting their headquarter out of Britain, a sector that represented GBP 124.20 billion in 2016, 7.2% of total UK gross value added.

Though the UK economics for the 2017 period are positive and give signs of recovery, we prevail a prudent stance, as economic conditions can change very quickly. We are expecting today’s December 2017 GDP Y/Y growth rate to be at 1.50%, among the lowest growth rate within the G20. In our scenario, uncertainty surrounding Brexit outcomes could strongly hamper UK business and household consumption in 2018.

By Vincent Mivelaz