A survey of global investors by Barclays Plc lays bare the depth of market pessimism as the U.K. starts divorce talks with the European Union.
Torturous, drawn-out negotiations with the EU that “involve a series of delays” is the likeliest scenario foreseen by the majority of the 642 respondents, Barclays strategist Sreekala Kochugovindan wrote in a report accompanying the release of the survey on Monday. That “may in turn weigh on market sentiment,” she said.
About 64 percent are skeptical the exit will be orderly and expect protracted discussions to sap the value of U.K. assets, in particular the pound. Its sharp drop since the Brexit vote has cheapened the real effective exchange rate to near an historic low, and investors don’t foresee a recovery to pre-referendum levels.
The pound absorbed another blow from the Bank of England Tuesday when Governor Mark Carney said he’s still worried about the impact of Brexit on growth, and signaled it may be to soon to withdraw stimulative policy. The British currency lost 0.5 percent to $1.2669 as of 12:01 p.m. in London.
A survey of economists by Bloomberg has the currency weakening a further 5 percent to $1.33 by 2020. A previous Barclays survey conducted before the vote accurately projected the pound’s trading range in the aftermath of the referendum.
Consumer Prices
Consumer prices are picking up, presenting policy makers with a classic stagflation dilemma, according to Charles Diebel, the London-based head of rates at Aviva Investors. They’re more likely to sacrifice inflation targets and the pound than douse growth with higher rates, he said.
“Considering the amount of risk that faces the U.K economy with the whole Brexit scenario and the uncertainties that go with that, the worst thing they can do is artificially slow the economy to try and control inflation,” Diebel said in an interview with Bloomberg TV. “Our view is that policy makers will look through the inflation risk.”
News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.
