Media comment – UK Coalition building and pragmatism

Ana Boata, European economist at Euler Hermes, commented:

Any governing coalition, or minority government, should last at least 12 months despite its fragility as it cannot afford to waste time on Brexit negotiations, unless the EU countries agree by unanimity on an extension of the 2-year timeframe of the Brexit process.
In the short-term, political uncertainty and noise could trigger an increase in financial volatility and further swings in sterling which pose downside risks to our GDP growth forecast of +1.4% for 2017.However, a supportive Bank of England and a possible countercyclical fiscal policy effort (to respond to growing domestic concerns) would offset the cost of uncertainty and will be beneficial for a common voice for negotiations with the EU. In the medium term, a softer Brexit suggests an upwards movement to our forecasts.Several pain points pushed for a retaliation vote by the electorate: the significant fall in sterling since the Brexit vote; the sharp rise in inflation; the fall in real wages since February 2017; and the rise in business insolvencies this year.

 

 

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