Economics and Currencies The UK’s rising political risks
‘UK political risks rising’, warns Michael Saunders & Mark Schofield, ‘for our analysis suggests that a hung parliament, or at best a weak Conservative government, is by far the most likely outcome… if so, implications for sterling and for gilt yields are potentially grim: on a relative basis, the UK’s current fiscal position looks very strained indeed, and a hung parliament would make a credible programme of fiscal restraint extremely unlikely…what’s more, our fiscal premium model suggests that this is not yet fully priced into gilt yields… we think gilt yields will have to rise to about 4.75% and possibly higher if inflation remains a threat’.
The Bank of Canada sets the stage
‘The notable difference between today’s and January’s Statement’, observes Canada Economist Dana Peterson, ‘is that the BoC now judges that main macroeconomic risks to the inflation projected are balanced, as opposed to tilted slightly to the downside… a first step in a natural progression towards full confidence about unwinding extraordinary accommodation… nevertheless, as uncertainties remain, we continue to believe the BoC will hold to its commitment and raise rates only gradually in the second half. .. by 25 basis point-increments, beginning at the July meeting, placing the year-end rate at 1¼%’,
The Globaliser - 3 March 2010
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