The Intelligence Report – 25 September 2017

25 Sep 2017

  • Brexit: The story so far – In light of the UK Prime Minister Theresa May’s speech in Florence last week, we review the developments in the UK since the Brexit vote.
  • Out of the B(I)oE – Provides context for the sudden move of UK gilt yields, which have risen sharply since the release of surprisingly hawkish BoE minutes.

This week’s Intelligence Report focuses on the UK.

In the light of UK PM Theresa May’s speech in Florence last week, Richard Barwell, in our first article, reviews developments in the UK since the Brexit vote. These developments have included a change in political leadership, aggressive Bank of England (BoE) easing, a sharp currency depreciation, the triggering of Article 50, the start of formal negotiations with the EU, and a snap election, the implications of which are yet to be fully seen. This roller-coaster of political developments has been mirrored by equally dramatic market movements, as investors wavered between fears of a hard Brexit and hopes for a softer Brexit.

More recently, hopes have been in the ascendancy, and this has been reflected in recent market movements. UK gilt yields have risen sharply since the release of surprisingly hawkish BoE minutes, sterling has rallied strongly and UK equities have sold off. In our second article, Jenny Yiu provides some context for this sudden move, arguing that investors had previously paid too little attention to a number of warning signs, and that, indeed, a gradual shift in BoE rhetoric has been evident since March. This only underlines the continuing levels of influence that central banks are exerting on all markets, and the importance of careful analysis of central bank policy statements in order to better understand monetary policy reaction functions.

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