Brexit trade talks are expected to continue through mid-November amid reports of progress, but more needs to be done. Meanwhile, the UK private sector’s contraction and negative rates are expected to weigh on the pound sterling, according to ANZ Bank economists.
“The UK and the EU are engaged in intense negotiations to break the deadlock in bilateral trade negotiations. There is hope that progress can be made on a level playing field and state aid, with both sides working on a dispute settlement mechanism. Fishing remains an obstacle. Economically small, it is a very moving subject.
“Recent optimism does not preclude the fact that there is still a lot to do in the talks and the outcome is uncertain. Regardless of whether there will be an agreement on tariffs and quota-free access, trade frictions will increase. Border controls and bureaucracy will slow the flow of goods and increase costs. Non-tariff barriers represent a significant risk in the absence of a comprehensive agreement. ”
“In the UK, the economic shock of COVID-19 is reducing the government’s previous spending plans. Public sector debt is now 103.5% of GDP compared to 80.8% at the end of 2019. The government canceled its triennial expenditure review. The risk is that a small private sector assumes responsibility for restructuring growth and containing debt. Disinflationary pressures are intense and we expect the BoE to switch to negative interest rates next year, which will weigh on the GBP. “