04.24.2015
By Terry Flanagan

UK Economy Defies Political Uncertainty

Mike Amey, managing director and portfolio manager at Pimco responsible for sterling portfolios, said the UK economic recovery is expected to stay on course despite the political uncertainty of the election on May 7.

Amey said in a video on Pimco’s website that the UK is performing well – with above trend growth of 2.5%, rising employment and wages, and a falling deficit.

“Political uncertainty is not a shock and is a lot less than at the last election,” added Amey. “Even a minority government should not stop the underlying momentum so we expect the UK economy to continue to perform well.”

Goldman Sachs said in a report that political uncertainty, of itself, has not been decisive for sterling but the macroeconomic backdrop is key.

“We ultimately think that the GBP will be driven by the solid fundamentals of the UK economy,” added Goldman. “Together with the implementation of the ECB’s QE programme, UK outperformance should see Sterling strengthen versus the Euro over the next 12 months – we forecast EUR/GBP at 0.65, from 0.71 currently.”

Jeremy Beckwith, director of manager research, UK at Morningstar said in a blog that, so far, the UK financial markets have been happy to ignore the political uncertainty.

“A minority government of any sort may be seen as a negative development by the currency and gilt markets on the basis that it will be difficult for the government to implement its policies,” added Beckwith. “On the other hand a weaker sterling is usually good news for UK stocks and politicians who are unable to do anything could be seen as good news in that they are unable to mess anything up.”

The current opinion polls predict that no single political party will win enough seats to form a majority government and the likely result is not another coalition, but a minority government supported by other parties on an issue-by-issue basis.

Featured image via Dollar Photo Club

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