'Soft' economic indicators suggest that the UK has rebounded in August after the initial deceleration in July, suggesting that the UK economy may avoid a Brexit-recession.
As the economic data have been better than expected, we now expect quarterly GDP growth to stay positive during H2 16, i.e. we no longer expect a Brexit-recession.
We stress that uncertainty surrounding our forecasts is higher than usual as the Brexit withdrawal negotiations are set to begin early next year.
Despite better data, we cannot rule out further Bank of England (BoE) easing later this year, as the BoE has indicated that it will cut rates if its growth forecast (0.0%-0.1% q/q in Q3) materialises.
We still expect a 15bp cut from 0.25% to 0.10% in November, but it is a very close call.
We expect the BoE to stay on hold at its upcoming meeting on Thursday but will read the minutes carefully for any changes to its easing bias. We may review our BoE call after the meeting.
We expect EUR/GBP to continue to trade higher in the coming months due to more BoE easing, political uncertainty and considerable imbalances in the economy.
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