Stocks in London have made a soft start to the week with the FTSE 100 dropping a little over 20 points so far this morning. The declines come not long after the IMF warned of the economic damage that Brexit would cause should the UK leave the EU without a deal. The pound is little changed on the whole, trading around $1.31 against the US dollar and not far from a 2-month high against the Euro.
Substantial costs to UK under no-deal
The International Monetary Fund has delivered a fairly worrisome assessment for the UK’s economic prospects in the near term should the country exit the EU under a no-deal scenario. The institution has said the Britain would struggle to exceed a 1.5% growth rate in the years ahead and that these forecasts themselves were based on a smooth Brexit and a broad trade agreement between the UK and EU - in the event of a disruptive departure the outcome could be “significantly worse”. This shouldn’t really come as too much of a shock to anyone and once more highlights the importance of avoiding this outcome as Theresa May prepares to head to Salzburg for an informal summit with EU leaders later this week.
Lira comes back under pressure
Last week saw a strong move higher in the Turkish Lira after the central bank attempted to demonstrate their independence by hiking rates significantly despite president Erdogan’s public opposition to policy tightening. Against the US dollar the Lira gained 4% last week, but it remains down by almost 40% on the year and is seeing some selling at the start of the week. The vicious cycle of a weaker currency leading to higher inflation is still in effect and while last week’s measures were a welcome development, they were long overdue and on their own they are unlikely to prove enough to curb the large depreciation seen in recent months. Investors will be watching closely this week for the government’s medium-term economic plan which is scheduled to be unveiled by Finance Minister Berat Albayrak on Thursday and the currency remains vulnerable to any adverse developments.
