As negotiations start again, disagreements persist in Brussels whilst public optimism fades and the economy continues to slow
Brexit Secretary David Davis stayed in Brussels for just three hours on Monday, but he will return on Thursday to get an update on progress and to schedule details for the next round of discussions.
This comes as Conservative ministerial infighting continues, with briefing and counter-briefing commonplace given Theresa May’s weak position as Prime Minister. Debate continues about how long she can stay on with the October Conservative party conference (1-4 October) seen as a key event that could determine her future.
Meanwhile, the threat of an imminent Bank of England rate hike has receded thanks to a surprise dip in inflation and subdued activity data. Economic figures increasingly suggest the UK economy is losing steam.
This week’s inflation data, which saw headline CPI dip back to 2.6%, casts further doubt over recent hawkish Bank of England comments.
Admittedly, a fair chunk of the recent fall is down to lower oil prices, and as the effect of the weaker pound continues to filter through, we expect inflation to stay in the 2.5-3.0% area for the rest of 2017. Whilst some hawkish voters have said they have “limited tolerance” to above-target inflation, the outlook for wage growth and investment remains subdued. Governor Carney has said these need to recover if the Bank is to hike rates, and elevated political uncertainty, higher import costs, and faltering consumer demand suggest businesses will remain cautious.
We still think a 2017 rate hike looks unlikely.