UK election: not likely to have meaningful effects - Wells Fargo

Analysts from Wells Fargo, are not inclined to make significant changes to their economic forecast at this time. They continue to see the US dollar higher on the back of Federal Reserve policies. 

Key Quotes: 

“In our view, the election results are not likely to have meaningful effects on the British economy in the foreseeable future, and we are not inclined to make significant changes to our economic forecast at this time. In that regard, we forecast that real GDP growth in the United Kingdom will slip from 1.8 percent last year to 1.5 percent in 2017 before edging back up to 1.7 percent next year.”

“Looking forward, we expect that sterling will depreciate mildly against the greenback over the next few quarters. That said, we forecast that the dollar will strengthen modestly vis-à-vis most currencies in the near term as the Federal Reserve continues to tighten policy while most other major central banks continue to maintain accommodative policy stances. In other words, the election has not really caused us to rethink our views regarding our forecast for the value of sterling against other major currencies.”

“After political uncertainty in the United Kingdom starts to dissipate, there is the chance that sterling depreciation could eventually be reversed. If the election results produce an outcome that reduces the probability of “hard” Brexit (i.e., the United Kingdom decides to give up full access to the EU single market in order to have more sovereignty over its trade and immigration policies) sterling could recover. Everything else equal “hard” Brexit would increase uncertainty because it would imply more adjustment of the British economy from the status quo. “Soft” Brexit, in which only modest changes to trade and immigration policies would be required, would imply less adjustment vis-à-vis the status quo.”