UK will be stuck with searing inflation for years because of Brexit, according to strategists at Wall Street’s top banks.
UK will be stuck with searing inflation for years because of Brexit, according to strategists at Wall Street’s top banks.
35 comments
And the public will get the blame.
Brexit’s Legacy Is Hotter UK Inflation Risk for Years Ahead
‘The economy is extremely fragile,’ says Citigroup strategist
22 June 2022, 07:27 BST
Updated on 22 June 2022, 12:39 BST
The UK will be stuck with searing inflation for years because of Brexit, according to strategists at Wall Street’s top banks.
Citigroup Inc., Bank of America Corp. and Standard Bank all see the UK as a outlier in the developed world because of the economic damage wrought by the decision to cut ties with the European Union. Even as price pressures start to fade elsewhere, they say UK inflation will be higher-than-normal because of immigration controls and supply chain disruption. A report Wednesday showed price pressures hitting a fresh four-decade high.
Inflation is a big reason why investors are bearish on the pound, even with the currency trading near a two-year low to the dollar. The view among experts is that Brexit isn’t the cause of the cost-of-living crisis, but it will make solving the problem harder in the UK than anywhere else.
“Inflation in the UK will be stickier over the medium to long-term because of Brexit,” said Vasileios Gkionakis, head of European FX strategy at Citigroup. “The economy is extremely fragile and in desperate need of more fiscal support, which is unlikely.”
The Office for National Statistics reported on Wednesday that consumer prices rose accelerated to 9.1% in May, from 9% a month earlier. The pound weakened 0.3% to $1.2243.
Experts say it’s hard to know to what degree the UK’s economic woes are caused by the pandemic or the aftermath of Brexit. Some research suggests Brexit is already taking a toll. Trade barriers have driven a 6% increase in UK food prices, according to a report from the London School of Economics.
The links between Brexit, the economy and inflation aren’t always clear cut. Citigroup’s Gkionakis said it’s possible that slower growth in the UK could ease price pressures caused by Brexit in the near-term. Rate hikes by the Bank of England are another uncertainty for investors to reckon with.
“The market is currently telling us that the BOE will hike quite aggressively,” said Francesca Fornasari, head of currency solutions at Insight Investment. “If that turns out not to be the case, particularly when inflation is quite high, that’s one of the things that could knock sterling further down.”
To Bank of America’s Kamal Sharma, there’s a long list of reasons to still be negative on the pound. The economy is in poor shape and the BOE’s decisions are the subject of politicized attacks.
“As the pandemic headwind starts to fade, the UK will be left with this one big idiosyncratic shock,” he said. “For an economy that’s very reliant on domestic demand to drive the economy, that means you’re heading into a period of sub-trend growth, which is negative for the pound.”
Replacing access to the EU’s single market with labor and goods from elsewhere remains a challenge for the UK government, which has struggled to make headway on trade agreements. While the UK signed its first agreement with a US state last month, the piecemeal approach shows talks are failing to progress.
Among strategists, most expect the pound to keep weakening. Citigroup’s Gkionakis sees the euro gaining against sterling to around 90 pence by the end of the third quarter, from 86 pence currently.
To get inflation under control, the BOE may have to take a harder line on interest rates, according to Steven Barrow, head of currency strategy at Standard Bank in London.
“When we think about the next three to four years, not just the next 12 months, we believe there is every reason to expect that UK base rates will vault those in the US,” he said. “The market is not priced for this.”
Brexiters and especially Lexiters, thank you very much
To the folk downvoting this…please provide the evidence for the brexit benefits!
Carling guzzlers voted for it.
I hope they have a personal financial reckoning frankly.
Can’t say we were not told this would happen. What’s the excuse boris? Where’s the money from the bus?
I think they highlight the challenges but don’t weight them appropriately.
The core inflation is due to shipping and energy costs, both things which are retreating and will drop further. Identifying how far back they will retract is impossible but once they settle at lower levels they will stop feeding into inflation, and drag the overall inflation rate down with it
Bank of England are probably correct with their expectation of inflation slowing down next year and it returning to below 2% in 2024.
Weyhey, I’ll just take this new win right on down to the empty vault in my soul where joy used to be stored with all the rest of the crushing dissapontment
Anyone who can afford to should just leave the UK. It’s clearly intent on becoming a vassal of the 1%.
Haha we reap what we sow 👍🏻
Wait, isn’t that exactly what the Brexiteers said?
Project Fear really took the criticism badly, maybe people should have been nicer to it.
Aka ‘companies will continue to raise prices for less product and anyone not in a bank or parliament had better grab their ankles’.
At least the Brexiters managed to stop the brown people coming into the country because something something control of borders something something, like they wanted, oh wait no they didn’t.
What’s the solution?
It’s funny how our old friend Farage doesn’t get many shouts these days. Has he shrivelled up and died now that his purpose for existence has been fulfilled?
If you know a brexiter in real life never ever FUCKING EVER let them forget what they have done to us
I’m sure if we clasp our hands and BELIEVE in the UK all this will just go away, like the ImBrexiles recommend
Just a question.
I live in a different country where we also have rampant inflation of 6.9 and growing…
Is brexit to blame for that too, if not why not?
Perhaps the yank bankers were thinking about there own country’s transitory inflation is now entrenched. 😶
The uk is truly a self imploding country, they don’t give equal rights to all colonies so end up losing America, they devalue the currency so end up losing to bloody Soros, they also end up walking out of the only room they were actually influential in. They can’t make it on their own and they can’t admit their mistakes. The uk just doesn’t get out of its islander mentality. I wish this crisis worsens until there’s sense burnt into them.
The article itself says they have no evidence for brexit causing inflation and that they can’t say how much inflation is caused by brexit. So quality article I guess.
How do you remoaning w@nkers get away with posting so much drivel……..give it a rest or get over to Europe
Shock and horror…. No one saw this coming! 😱 Anyone who isn’t ludicrously rich knows how bad Brexit was. Alot of people bought into it but it’s like Trump, promised alot an gave nothing. We just have a screwed economy and Borris at the helm, all hail the failing island.
It’s not solely on Brexit, but it definitely hasn’t helped, or been a benefit whatsoever.
Soooo why don’t we reverse it?
Wonder what Boris &Co’s excuse’s will be after they get asked about it. This could be fun to see.
It’s what the people wanted. (51%of them, anyway)
They are probably going to let a deluge of strikes lead to massive unemployment as unions won’t be offered any agreeable terms. This will reduce demand and lower inflation. Tory media will lap it up and call it a success. Poverty levels will be worst ever.
Boris won’t give a fuck cos all his friends will be getting major contracts on the back of Britain becoming more investible for its management of inflation.
Fucking watch it.
“Project fear”
No it won’t London will
It is funny that different people ate putting the blame if inflation on different things depending in their politics. In UK they are blaming it on Brexit. In the US they are blaming it on Trump or Biden, depending on which one they hate. When a lot of it is due to covid and a war.
Yes because no other countries are facing inflation!
I’m sure Wall Street bankers have our best interests at heart.
Brexiters are right now looking exactly like the lunatics in the USA who insist that the US election was stolen from Trump and that JFK is still the president.
In the defense of the people who voted for Brexit, alot of lies were told by our government and if your not politically and economically knowledgable it’s sort of hard.