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Sterling holds near $1.30 as optimism over Brexit deal grows

Sterling held near $1.30 on Tuesday as signs of progress in Brexit talks helped cement gains after investors pushed back expectations for when the Bank of England would cut interest rates below zero.

The pound was last down 0.1% at $1.2966 after topping $1.30 for the first time since mid-September. Sterling later fell into negative territory, before making up ground after Reuters reported that Britain and the European Union were moving “closer and closer to a deal”.

European Union diplomats told Reuters that Brussels was gearing up to negotiate until as late as mid-November — rather than cutting talks off at the start of next month — to avoid a damaging “no-deal” scenario when Britain’s standstill transition with the bloc ends on Dec. 31.

Sterling last traded down 0.1% against the single currency at 90.91 pence.

Cautious optimism that London and Brussels would reach a deal has been growing in recent days, and most analysts now expect the two sides to do so before the transition deadline.

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“We’re getting closer and closer — the talks are miraculously getting slightly warmer,” said Mark Holman, CEO at TwentyFour Asset Management.

“For us looking from financial markets, it does seem stupid not to get a deal done … If you ask me today, I think it’s probably 50:50.”

Earlier, sterling had touched $1.3007, its highest since Sept. 18.

NEGATIVE RATES

That mark came as money markets pushed back bets that Britain’s interest rates would turn negative, with investors now seeing rates falling below zero in May 2021. Previously they had expected the Bank of England to cut rates into negative territory in March.

The BoE, which cut borrowing costs to a record-low 0.1% in March, is looking at whether it is technically feasible to cut its main interest rate below zero, something that has already been done in Japan and the euro zone.

Bank of England rate-setter Jonathan Haskel said on Monday he saw downside risks to the economy — and also some possible benefits — from cutting interest rates below zero.

“They are still keeping the option open that negative rates could help support the recovery,” said Lee Hardman, currency strategist at MUFG.

Sub-zero rates would likely weaken the pound, at least in the short term, he added.

Reporting by Tom Wilson

Source: UK Reuters

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Getting Brexit done will not help UK economy, say academics

Carrying out Brexit will not improve the UK’s struggling economy but will usher in years more uncertainty about Britain’s trading relationships, a new report has said.

The hard Brexit that Prime Minister Boris Johnson is proposing will also limit the size of the UK market and raise trade costs, making it a less attractive place for investment, according to at the London School of Economics (LSE).

The report says the UK economy has suffered a “lost decade”. Productivity – output per hour worked – is 24 per cent below its pre-financial crisis trend and real wages are yet to return to 2008 levels.

A major factor has been low levels of investment, the report says, which was suppressed in part by austerity and more recently by Brexit uncertainty.

Johnson has said that leaving the European Union with a Brexit deal would boost the economy. Professional services firm KPMG said in September that a Brexit deal would mean “investment recovers some ground”.

However, John Van Reenen, professor of economics at LSE and an author of the report, said: “It is a mistake to believe that ‘getting Brexit done’ will improve things.

“First, there will be continued uncertainty due to years of negotiation over what form the UK’s future trading relationship with Europe will actually look like. Second, a hard Brexit is certainly bad for the economy compared with remaining in the EU.

“The UK will be a relatively smaller market with higher trade costs with our closest neighbours, so a less attractive place for investment.”

To address Britain’s “abysmal” performance on productivity and “pitiful” wage growth, more public and private investment is required, the LSE report said today.

All the major parties have promised to increase government spending in their manifestos ahead of the 12 December General Election, with Labour’s radical, but much-criticised, plans promising by far the most.

Van Reenen said: “It is welcome that the main parties are promising increases in spending to finance public investment, so long as such investments are based on solid evidence rather than political gimmicks and ministerial whims.”

By Harry Robertson

Source: City AM

UK economy UK companies UK business leaders UK economic growth London commercial property market Post-Brexit trade deal
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How much smaller UK economy is likely to be with Boris Johnson Brexit deal

THE UK economy would be 3.5 per cent smaller in the long term under Boris Johnson’s Brexit deal, compared with continuing European Union membership, a leading independent think-tank is warning.

The National Institute of Economic and Social Research says it would not expect UK economic activity to be boosted by approval of Mr Johnson’s deal, which involves leaving the single market.

In its latest forecast, published today, the think-tank says the UK outlook is “clouded by significant economic and political uncertainty and depends critically on the United Kingdom’s trading relationships after Brexit”.

The NIESR adds: “We would not expect economic activity to be boosted by the approval of the Government’s proposed Brexit deal. We estimate that, in the long run, the economy would be 3.5% smaller with the deal compared to continued EU membership.”

The think-tank forecasts, on the assumption that chronic uncertainty persists but the terms of EU trade remain unchanged, that growth will be less than 1.5% in 2019 and 2020, although it notes this prediction is “subject to significant uncertainty”.

It says risks to growth continue to be weighted to the downside, although not as much as in its previous forecast “given the reduced likelihood of a no-deal Brexit”.

The NIESR now judges there is a 15% probability of UK economic output falling in 2020, “also reflecting the risk of a more severe global slowdown”.

The think-tank noted the UK economy was estimated to be 2.5% smaller now than it would have been otherwise, as a result of the 2016 Brexit vote.

By Ian McConnell

Source: Herald Scotland

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Bank of England deputy suggests Brexit deal could see rates rise

Deputy Bank of England governor Dave Ramsden has said he thinks gradually increasing interest rates could still be the right path if Britain achieves a smooth exit from the European Union.

Threadneedle Street has repeatedly struck a more hawkish tone than its American and European counterparts, saying it foresees “limited and gradual” rate rises unless Britain’s economy takes a downturn.

Ramsden spoke to Bloomberg yesterday after Prime Minister Boris Johnson announced a “great new” deal with the EU that would see existing trading arrangements stay as they are for at least a year while a new trade deal was reached.

“The kind of guidance we’ve been giving – in the world of a deal it still applies,” Ramsden said in the interview, published today. “We’re not saying over what timeframe, but limited and gradual is a reasonable qualitative framing.”

Ramsden’s view diverges from some of his Bank of England policymaker colleagues. Extern monetary policy committee (MPC) members Gertjan Vlieghe and Michael Saunders have suggested rates should be lower even in the event of a deal.

The BoE deputy said a Brexit deal and some certainty for UK businesses will lead to “some pickup in investment” and will bolster demand and “hopefully” productivity.

Business investment has slumped in 2019, with firms reticent to spend until there is greater certainty over Brexit.

Johnson’s new Brexit deal goes before MPs tomorrow in what looks set to be an incredibly tight vote. Ramsden said the BoE will keep an eye on currency movements after the vote.

By Harry Robertson

Source: City AM

Buy To Let Mortgage Market Brexit deal BTL Tax changes Rental income buy-to-let hotspots Buy To Let Property Sector buy-to-let buy to let property investors Buy-to-let Two bed properties
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Brexit Deal Positive For UK Buy To Let Property Sector

The news yesterday from Boris Johnson that a new Brexit deal has been agreed should be a positive step for the UK buy to let property sector, taking away much of the uncertainty from the property market.

Leading figures from the property sector reacted positively to the Brexit deal news from the government.

Co-founder of ideal flatmate, Tom Gatzen, commented: ‘The news of a Brexit deal will bring relief to the many European renters currently residing across the UK. For many, the political purgatory caused by a protracted Brexit process has thrown doubt over their status to live and work in the UK and this has had a direct impact on their ability to rent, how long they can rent for and their commitment to enter into a lengthy tenancy agreement.

‘Although the devil will very much be in the detail of today’s deal, a light at the end of a very long, dark tunnel should go some way in stabilising this segment of the UK rental sector and we can now get back to living in happy, harmonious households.’

Founder and CEO of Springbok Properties, Shepherd Ncube, commented: ‘Hallelujah. Against the odds and in the face of doubters, a Brexit deal has now been done and the UK property market can emerge from its dormant state brought about by months of political uncertainty.

‘We don’t yet know the detail, of course, however regardless, the property sector will surely begin to breathe again on the basis of some level certainty being restored and this uplift in market activity should see the cogs of positive price growth and transactions start to climb once again.’

Director of London lettings and estate agent, Benham and Reeves, Marc von Grundherr, commented: ‘The political paralysis that the economy and in particular the housing market has endured these last few months has been torturous for would-be home sellers, buyers, estate agents, conveyancers and mortgage lenders alike.

‘London has certainly taken the brunt of this and while there are no doubt many details left to iron out, we can start to look forward and finally, beyond Brexit. This will bring about a notable change in the fortunes of weary London home sellers and the capital will now regain its title as the cornerstone of the UK property market.

‘Foreign investment has remained strong despite the current landscape, but this revival in domestic appetite will fill the tank and see the market shift through the gears, if not immediately, certainly as we see in a new year.’

Source: Residential Landlord

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Brexit deal hysteria sparks dramatic gains for UK stocks

London-listed companies with exposure to the domestic economy soared on Friday for their best day in nearly a decade as hopes that Britain can seal a Brexit deal triggered explosive gains and a major reversal of fortunes for the much-shunned UK market.

Investors pounced on everything from banks like RBS (RBS.L) to housebuilders and retailers such as Kingfisher (KGF.L), which owns DIY chain B&Q, after British Prime Minister Boris Johnson and his Irish counterpart, Leo Varadkar, said they had found “a pathway” to a possible Brexit deal.

The buying spree targeted some of the market’s most beaten-down stocks and those considered most vulnerable to a downturn in consumer spending if the country crashes out of the European Union without a deal.

The FTSE 250 .FTMC surged 4.2%, while the Dublin bourse .ISEQ, often considered a barometer of Brexit sentiment, jumped 3.7% to its highest since May.

Source: UK Reuters

Brexit deal Pound to Dollar Financial sector UK confidence UK banks
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Brexit deal hopes push pound to highest in over three months

Sterling surged on Friday as investors rushed to reprice the prospect of a last-minute Brexit deal, after the European Union gave its chief negotiator the go-ahead to re-open negotiations with London.

The pound has rallied more than 3% since Thursday, its biggest two-day gain since mid-June 2016, before the British public voted to leave the EU. On Friday, it surged by more than 2% to a three-and-a-half-month high.

Many investors were positioned for another Brexit delay as the most likely outcome, believing that the chances of an agreement before the end of October were virtually zero. The surprising news that talks were back on squeezed those betting against the pound, exaggerating the move higher, traders said.

EU Brexit negotiator Michel Barnier said on Friday that he’d had a “constructive” meeting with his British counterpart, Stephen Barclay, and the 27 countries in the EU gave him the go-ahead to try and agree withdrawal arrangements before the Oct. 31 deadline.

Barnier told member states that Britain has changed its position and now accepts that there cannot be the customs border on the island of Ireland, two EU sources said.

That followed a meeting on Thursday between the Irish and British prime ministers, who released a joint statement saying they could see “a pathway to a possible deal”.

The pound jumped 2% to $1.2708, its highest since late June at GBP=D3, in late London trading. It gained as much as 1.6% to 87.03 pence against the euro EURGBP=D3.

British stocks also rallied, gilt yields rose and money markets no longer fully priced in a 25-basis-point cut in interest rates by the Bank of England before December 2020.

Derivatives traders also regained confidence in the pound, with bullish bets exceeding bearish views on Friday for the first time since January 2018, according to the currency derivatives market, suggesting further gains for sterling.

Traders scrambled to cover positions amid the newfound optimism that a Brexit deal would be reached, said Kenneth Broux, FX strategist at Societe Generale.

“I think it’s very important to specify that sterling liquidity is very thin so volatility is high,” Broux said.

But he added that given the broadly bearish positions in sterling markets, “the obvious conclusion is that we’ll see a squeeze higher”.

Frederik Ducrozet, a strategist at Pictet Wealth Management echoed these sentiments. Irish officials have raised expectations for a deal, he said, and “if you get a path to a deal, there could be a massive squeeze in rates going higher and a re-steepening of yield curve.

“If that’s the case, then what we’ve seen today could just be the beginning of a bigger move,” Ducrozet said. “But we have been here before, so expectations may be a bit more limited.”

`TIME IS PRACTICALLY UP’
Despite the flurry of activity, it remains uncertain on what terms the UK will leave, when, and even whether it will do so at all.

Sounding a more cautious tone, top EU official Donald Tusk said “time is practically up” for Britain to reach a Brexit deal. That hurt the pound temporarily.

One dealer in London attributed price swings to “algos” – or computer-generated trading algorithms – in a headline-driven market.

Hopes are that a meeting between British and EU negotiators will pave the way for a Brexit transition deal at an Oct. 17-18 summit.. But some doubt Johnson will get the agreement past Britain’s parliament.

Deutsche Bank’s forex strategist George Saravelos said he was “turning more optimistic on Brexit” and no longer negative on the pound, while JPMorgan said the Anglo-Irish statement may have “changed everything”.

(For a graphic on ‘Sterling holds onto Thursday’s gains’ click tmsnrt.rs/2Mt66aq)

The sterling rally undermined UK’s export-heavy FTSE 100 .FTSE stocks index, but domestically focused UK retailers, banks and housebuilders benefited, rising 4% to 6%.

Irish stocks also rallied. Irish government bond yields fell .ISEQ IE10YT=RR.

Reporting by Elizabeth Howcroft

Source: UK Reuters

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Rates will rise in Brexit deal scenario

Homeowners should be ready for the Bank of England to increase interest rates in the face of a deal being struck on Brexit, economist Andrew Sentance has warned.

Speaking to podcast the LM Experience Sentance said there “aren’t enough hawks on the MPC who are trying to think about things from a different perspective.”

He was an external member of the Monetary Policy Committee of the Bank of England from October 2006 to May 2011

Sentance said: “I hope that if we get a deal it will remove the uncertainty around Brexit and create space for Bank of England to raise interest rates – not in a dramatic way.”

MPC warns of Brexit rate cut
Sentance said: “I hope that if we get a deal it will remove the uncertainty around Brexit and create space for Bank of England to raise interest rates – not in a dramatic way.”

However should there be a no deal scenario Sentance believes rates will stay the same.

He said: “I find it very hard to believe that the Bank would really jack up interest rates if the no deal predictions turn out to be correct.

“I think the difference in scenarios between deal and no deal is that there is space for rates to increase. That is not the case in a no deal scenario.”

However he added: “It does seem if there is ever an argument for keeping rates low it holds sway with the MPC.”

And earlier this week Bank of England (BoE) policymaker Michael Saunders has said the Bank of England is considering cutting interest rates, even if the UK avoids a no-deal Brexit.

Rates have stood at 0.75% since August 2018.

By Ryan Fowler

Source: Mortgage Introducer

Bank of England rates
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No rush for Bank of England to raise rates after a Brexit deal

The Bank of England probably has more time than it previously thought before it will need to raise interest rates, assuming Britain can leave the European Union with a transition deal, BoE interest-rate setter Silvana Tenreyro said on Wednesday.

The pound would probably rise after a Brexit deal, Tenreyro said. Combined with the ongoing slowdown in the world economy this would probably offset the inflation pressure building in Britain’s labour market and allow the BoE to keep rates on hold at their current level of 0.75% for a while.

“Coupled with signs of a weaker global outlook, recent developments likely lengthen the period until there is a sufficient pick-up in inflationary pressures for me to vote to raise Bank Rate,” Tenreyro said in a speech. “I do not currently anticipate such a pick-up in the next few months.”

Tenreyro said a “small amount of policy tightening” would be needed over the next three years in the event of a Brexit deal.

The BoE has long advised investors that rates are likely to go up in a gradual and limited way, as long as a Brexit deal is done.

In the event that Britain leaves the EU without a deal, it was more likely than not that the BoE would need to ease monetary policy to soften the shock, she said, repeating comments she made in March.

But this was “by no means certain,” she added.

The fall in yields on British debt reflected worries about the world economy and not just Brexit, she said.

Many investors are betting that the BoE’s next rate move will be a cut, not an increase, given their fear that a no-deal Brexit looks more likely.

Both contenders to replace Theresa May as the next prime minister have said they are prepared to take the country out of the EU without a deal if necessary.

BoE Governor Mark Carney said last week that the risks of a no-deal Brexit and an escalation of global trade tensions were rising, adding to bets in markets on a BoE rate cut.

Source: Investing

UK economy Commercial property investment
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UK economy to make modest post-Brexit recovery if deal agreed – economists

UK economy will barely grow in the run-up to Brexit amid concern the UK will leave the European Union without an agreement, but if there is a deal there will be a modest post-divorce upturn, according to economists polled by Reuters.

Economists mostly said a free-trade deal between the two will be made and expectations that Britain will leave on March 29 without an agreement have barely changed over the past month.

Growth slumped to 0.2 percent last quarter as Brexit worries hammered investment by companies and a global economic slowdown weighed on trade. The February 8-12 Reuters poll said it would expand at the same rate this quarter.

Polls conducted by Reuters since the June 2016 referendum decision to leave the EU have consistently said a no-deal Brexit would be the worst outcome for the British economy.

The chance of a no-deal Brexit nudged up only to 25 percent in the latest poll from the 23 percent given in January and, with a deal expected, growth is forecast to accelerate to 0.3 percent next quarter and to 0.4 percent in the third.

“If there’s a silver lining from the mounting signs that the uncertainty caused by Brexit is holding back GDP growth, it’s that the economy could enjoy a decent rebound if a Brexit deal is agreed,” said Paul Dales at Capital Economics.

The likelihood of a recession in the coming year held firm at 25 percent and the probability of one in the next two years at 30 percent.

“Although the economic headwinds have increased in recent quarters, the most likely way in which a recession will be triggered is if Brexit goes badly wrong,” said Peter Dixon at Commerzbank.

Prime Minister Theresa May is trying to convince the bloc to amend a divorce deal that she agreed with it in November but that was rejected by her own parliament. As it stands, the UK will leave the EU in 44 days without a deal.

May told British lawmakers from all parties on Tuesday she wanted them to back the Brexit deal she is aiming to strike, citing the need to pass further legislation to prepare for Britain’s exit. May said she believed she could reach a Brexit deal parliament could support.

European Union Brexit negotiator Michel Barnier said on Monday the bloc would agree to tweak the political declaration on EU-UK ties after Brexit that forms part of the exit package.

FREE-TRADE DEAL

As in all Reuters polls since late-2016, the vast majority of economists said the two sides would settle eventually on a free-trade deal.

Holding again in second place was Britain being a member of the European Economic Area, paying into the EU budget to maintain access to the EU’s single market.

The third and fourth spots flipped, with Britain leaving without an agreement and trading under basic World Trade Organization rules now in third place and Brexit being cancelled last.

Apart from January’s poll, Brexit being cancelled was in last place every time Reuters has asked.

The Bank of England said last week Britain faces its weakest economic growth in a decade this year, but also said interest rates would eventually rise if an EU divorce deal is done.

Other major central banks have signalled they will hold off on raising borrowing costs but BoE Governor Mark Carney stuck to his message that gradual and limited rate rises are coming if a no-deal Brexit is averted.

Economists polled by Reuters took him at his word and medians suggest a 25 basis point increase to Bank Rate to 1.00 percent would come in the fourth quarter, later than thought last month. Another 25 basis point was predicted in the second half of next year, also later than previously thought.

“The combination of Brexit uncertainty, slowing world – and UK – economic growth and lower forecasts for inflation suggests a far slower normalisation of policy,” said George Buckley at Nomura, who pushed back his expectation for the first hike to November from May.

Carney said on Tuesday a modest tightening of monetary policy over time would likely be sufficient to achieve the Bank’s 2 percent inflation target. The poll pegged inflation to average the target this year and next.

Source: UK Reuters