The anticipation of next week’s election delivering a substantial majority for the Conservative Party and leading to a Brexit deal has already triggered a turning point in the financial markets, with the pound rising to a seven-month high of $1.31 and a two-and-a-half-year high of €1.18 against the euro, and may soon prompt the economy to rediscover a bit of verve too. With the latest data suggesting that the 0.3% q/q rise in GDP in Q3 will give way to a smaller increase in Q4, or an outright contraction if the PMIs are to be believed, a turnaround is needed to prevent the Bank of England from cutting interest rates from 0.75% to 0.50%. We suspect that the combination of some reduction in Brexit uncertainty and a further fiscal stimulus after the election will mean that GDP growth in Q4 proves to be the nadir.
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