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Pound hit by “no-deal” Brexit plans


The pound was hit again as the government unveiled contingency plans for a “no-deal” Brexit. Against the euro, sterling fell below €1.11, and to $1.28 against the dollar. 

While Brexit Secretary Dominic Raab said 9,000 more civil servants would be hired to deal with Britain’s departure from the European Union, Chancellor Philip Hammond disclosed that the Treasury was predicting that a no-deal Brexit would reduce UK GDP by 7.7% over 15 years. The Chancellor also suggested the fall in GDP could be even worse if there was “short-term disruption”.

However, there was good news on the government’s finances. Government borrowing was 40% lower in the first four months of this financial year than in the same period a year ago, with the public finances showing a £2bn surplus in July. But the Office for Budget Responsibility (OBR) cautioned that the figures were flattered by one-off factors including the timing of payments to the EU.

UK manufacturing orders remained “robust” in August, according to the Confederation of British Industry (CBI).

In the business group’s Manufacturing Trends survey, more companies reported above-normal order books than those saying orders were down. The best performing sectors were food, drink and tobacco, while the worst were furniture and electrical goods.

The CBI said it expects exporters to continue to benefit from the weak pound but, domestically, manufacturers would continue to suffer due to squeezed household finances and lack of investment because of Brexit uncertainties.

The housing market remains weak, according to research by property website Rightmove. Asking prices were 2.3% lower on average in August compared to July, and 3.1% lower in London.

Year-on-year, asking prices across the UK were still up 1.1% but in the capital they were down 1.2%.

Analysts blame stretched affordability and tighter lending criteria, which limits the proportion of mortgages that lenders can agree at high multiples of salary – and so caps what buyers can pay.

Internationally, the US-China trade dispute continued. Despite negotiations between the two economic superpowers, both implemented 25% tariffs on $16bn of each other’s goods. China is to start legal proceedings under the World Trade Organisation’s (WTO) dispute resolution mechanism, while President Trump has threatened further tariffs on nearly all of China’s $500bn of exports to the US.

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Important Notes:

Main source of information: Company Report and Accounts, Bloomberg

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