24 Apr 2017

The week ahead: Monday 24 April 2017

Philip Shaw

Chief Economist

It is a case of another year, another vote in Britain, following parliamentary confirmation of Theresa May’s decision to ask for a snap General Election in seven weeks’ time (see our note: UK election on 8 June? A likely mandate not a mad date…).

And this of course will remain centre stage until polling day. The Conservatives’ have a huge lead in the opinion polls – a YouGov poll in The Times today showed the Tories’ margin over Labour at 24%. This can and will vary and of course there is widespread scepticism over polling accuracy. Even so it seems sensible to adopt at least a comfortable Conservative overall majority after 8 June as a central case, if not a complete landslide.

We see no reason to change our economic and policy forecasts at this stage. The same holds for our end-year sterling targets - for example, our cable call of $1.35. However the new election timetable should reduce the pressure on the British government to reach rushed settlements in its EU exit negotiations with the European Council. On this basis, markets may consider the tail risks to the UK to be smaller, which could add to this week’s upward pressure on the pound and bring $1.35 within sight at an earlier stage.

Despite a likely preoccupation with politics, other interesting UK events take place as well. March’s public finances are set to confirm the progress made in reducing borrowing. The deficit for 2016/17 as a whole should have fallen to 2.5% of GDP, albeit with modest help from temporary factors such as the timing of dividend payments. Also, we expect Q1 GDP to show a slowdown in the pace of growth, thanks to sluggish monthly data, not least consumer activity. On Friday S&P may review the UK’s credit rating, which has been at AA- with a negative outlook since the week after the EU referendum last June.

France of course faces more immediate political events, starting with the first round of Presidential voting on Sunday. According to the latest polls, centrist Emmanuel Macron and far-right Marine Le Pen remain poised to progress to the second round on 7 May. But the gap between the four main candidates (which also include centre-right François Fillon and far-left Jean-Luc Mélenchon) remains small, in the order of 4%-6%. Hence surprises could be on the cards if and when exit polls are released later on Sunday.

The ECB meets on Thursday. We expect the outturn to be very much ‘steady as she goes’, both in terms of policy itself and the message conveyed by the Governing Council (see our note: ECB in holding mode as it waits for signs of a sustained move in inflation). Euro area flash HICP estimates are published on Friday, the day after the latest German data, while preliminary French Q1 GDP figures are also out at the end of the week.

First estimates of Q1 GDP are also out on Friday for the US. There has been a yawning gap between very buoyant surveys and more subdued official numbers over the quarter. To us it looks likely that the GDP data will be relatively soft (as Q1 figures often are), a little below the 1.0% (annualised) mark. The US continuing resolution, which has served to avoid a government shutdown, expires on Friday. We expect it to be rolled over. However the Administration’s woes over reforming healthcare and how to fund its tax plans generally, seem set to remain.

Elsewhere there are announcements from the BoJ and the Riksbank. And we can probably expect a number of comments from international figures over this weekend, given the Washington IMF/World Bank/G20 meetings.

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