Could there be more trouble ahead for sterling?
Bank of America Merrill Lynch points out that in the first five months of the fiscal year, government borrowing declined at “only half the pace forecast” in the last Budget.
According to BofA’s Robert Wood, that means “the economy may not have been as strong as it perhaps seems from the current GDP data running up to Brexit”. That, Mr Wood continues, implies increased borrowing forecasts at the UK’s Autumn Statement on its finances, due on November 23. It also reduces the chances of the announcement then of a “large discretionary fiscal stimulus”.
Such an outcome could be keenly felt in dealing rooms.
As Mr Wood points out, it “would likely come as a disappointment to markets that seem to us to have taken the Chancellor’s previous suggestion of a ‘fiscal reset’ a little too far”.
And that is not all. The timing of the decision to trigger Article 50 of the Lisbon treaty, which starts the formal withdrawal process, could run deeper toward the May 2020 date of the next general election, says the bank.
“We assume the additional volatility that creates, and the actions it could catalyse, will depress UK growth through 2017. We assume Brexit will prove to be a chronic shock, keeping growth depressed for an extended period, rather than an acute one [ie] a recession followed by recovery.”
The pound — already down 13 per cent since polling day and well shy of its intraday peak of $1.3445 since the vote — could face further pain.