Wed, Feb 01, 2023 @ 09:25 GMT
HomeContributorsFundamental AnalysisAnother Inconclusive Election, UK In For A Volatile Week

Another Inconclusive Election, UK In For A Volatile Week

  • Swedish populists the big winners in weekend election;
  • Ambiguity seemingly the trick to progressing Brexit talks;
  • BoE meeting eyed as UK growth surpasses expectations in July.

It’s been a slow start to the trading week, with political stories broadly dominating in Europe as Swedish elections provided the inconclusive result many expected, with the now all too familiar addition of a surge in support for populists.

The result now means days or weeks of negotiations which is something we’ve become quite accustomed to in the current polarised political environment. Immigration was once again a hot topic during the campaign, with mainstream parties being punished for having not taken a hard enough stance on it, as has been the case in numerous elections across the EU in recent years and was a key factor in the UK’s decision to vote to leave in 2016.

While the election in Sweden may not have any knock-on effect to other European countries, it once again serves as a reminder to the EU that free movement may be fundamental to its ideals but it’s also contributing to the rise of nationalist parties. Brexit is unlikely to be the final casualty if leaders continue to bury their heads in the sand and hope it’s just a phase that passes, an approach many expect to be taken.

While growing support for a “people’s vote” suggest Brexit isn’t quite final yet, the exit door is drawing ever nearer and more and more it seems as though the best way to deal with some of the stickier points is going to be to kick the can down the road and deal with it another day. That’s certainly the message we’re getting recently if reports are to be believed which in a way will come as a relief to businesses as it suggests leaders will do whatever it takes to avoid a cliff-edge scenario.

The flip side of that is that it means negotiations are now going to drag on for another two years with officials squabbling in public over various issues. In the near-term though, this may be positive for the pound and the economy if it gives business peace of mind and even potentially allows them to invest with some confidence. Of course, that may just be an overly optimistic view.

Politics aside, this should be a very interesting week for the UK with a number of different data points being released and the central bank meeting. This morning we’ve had monthly GDP data out for July which showed the economy growing by 1.6% compared to a year earlier, slightly ahead of expectations. While the pound initially jumped on the release, it wasn’t hugely significant and didn’t last very long which suggests traders aren’t overly impressed with the number, despite the beat.

The Bank of England decision on Thursday will be of more interest, coming a month after it raised interest rates to a post-financial crisis high despite the significant uncertainty facing the economy and relatively mixed data seen over the course of the year. While another hike isn’t on the near-term agenda, with policy makers agreeing that futures increases need to be gradual, hinting at roughly one per year over the next few years, traders will be keen to hear the central bank’s on the recent developments.

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