Brexit genie is out of the bottle - SocGen

Kit Juckes, Research Analyst at Societe Generale, suggests that the UK economy enters a period of huge uncertainty – and weakness as a result - and despite the 9.8% fall in GBP/USD that we have seen overnight, there is a grave danger of further weakness in the weeks ahead.

Key Quotes

“Indeed, the view of policymakers will be that a weaker pound is a vital economic shock absorber.

A protracted period of negotiations to disentangle the UK from the EU, alongside attempts at putting together a new set of trade agreements, will come against a backdrop of domestic political uncertainty as the Conservative Party reacts to the result. There will be pressure on the United Kingdom as Scotland reacts.

Initially the Bank of England will focus on liquidity and the stability of the financial system but in due course, monetary policy is likely to be eased too. We continue to look for GBP/USD to trade in a 1.30-1.35 range for now (i.e. a little lower than here) and eventually, towards 1.20-1.25. EUR/GBP will rise further and indeed has already risen faster than our initial estimates, but we don’t expect a move to 0.90 (from 0.83 now).”