8 May 2015
UK: Ready for Brexit? – ING
FXStreet (Barcelona) - With Conservatives running in the lead, James Knightley, Senior Economist at ING, comments that while more pro-business, a Conservative government raises major issues over the UK’s relationship with the EU while SNP’s surge leads to questions over Scotland’s relationship with the rest of the UK.
Key Quotes
“The potentially bigger story is that David Cameron has promised a referendum on the UK’s ongoing membership of the EU by the end of 2017. He now appears to have the mandate to call this referendum, which suggests that there will be two years of uncertainty ahead of the actual vote that may unsettle businesses and households.”
“The clear risk is that this could potentially lead to the economy losing some momentum and the BoE may raise interest rates more cautiously.”
“Indeed, the UK has been a key recipient of Foreign Direct Investment over recent decades with United nations data showing it accounting for 21% of all investment spending versus 8% in other developed markets.”
“A second issue is that the Scottish Nationalist Party has won virtually all the seats in Scotland, which suggests that David Cameron will have to offer more devolved powers. The SNP’s campaign was based on no more austerity for Scotland so there are likely to be more discussions over the transfers of fiscal policy in order to head off another campaign for Scottish independence.”
“Sterling has jumped on the news that the Conservatives look as though they could have a majority. Such an outcome removes a lot of political risk regarding fears over a prolonged period of government formation and the possibility that there may not be a clear result at all.”
“However, the issues over the EU and Scotland will be difficult for the government to deal with. Therefore, there is the potential for political risk feeding through into economic weakness and a less aggressive interest rate hiking profile and weaker sterling.”
Key Quotes
“The potentially bigger story is that David Cameron has promised a referendum on the UK’s ongoing membership of the EU by the end of 2017. He now appears to have the mandate to call this referendum, which suggests that there will be two years of uncertainty ahead of the actual vote that may unsettle businesses and households.”
“The clear risk is that this could potentially lead to the economy losing some momentum and the BoE may raise interest rates more cautiously.”
“Indeed, the UK has been a key recipient of Foreign Direct Investment over recent decades with United nations data showing it accounting for 21% of all investment spending versus 8% in other developed markets.”
“A second issue is that the Scottish Nationalist Party has won virtually all the seats in Scotland, which suggests that David Cameron will have to offer more devolved powers. The SNP’s campaign was based on no more austerity for Scotland so there are likely to be more discussions over the transfers of fiscal policy in order to head off another campaign for Scottish independence.”
“Sterling has jumped on the news that the Conservatives look as though they could have a majority. Such an outcome removes a lot of political risk regarding fears over a prolonged period of government formation and the possibility that there may not be a clear result at all.”
“However, the issues over the EU and Scotland will be difficult for the government to deal with. Therefore, there is the potential for political risk feeding through into economic weakness and a less aggressive interest rate hiking profile and weaker sterling.”