Britain is heading towards a disruptive Bexit, with all facts pointing in that direction. Boris Johnson is set to take the leadership of the Tory Party and the position of Theresa May as Prime Minister of the UK altogether. But judging by his comments, not many people expect a deal between the UK and the EU, since Johnson is even more “radical” on the issues that set the two sides apart.
As a result, the GBP has been declining for a long time and the fall picked up more pace after May’s failure to pass her deal in the British Parliament. The economy continues to weaken as the data has shown recently, especially in Q2, after the inventory buildup by UK firms in Q1 ahead of a disruptive Brexit.
Different sectors of the economy are in contraction now, but inflation and the employment sector remain in a good shape. Inflation is understandable because of the weaker GBP, but employment and earnings are surprising. The unemployment rate is at a several-decade low while earnings are growing at a pace of 3.1%, as April’s report which was released last months showed and they are expected to remain unchanged for May.
This is keeping the GBP afloat, because if earnings start falling, then the GBP will likely resume the bearish turned and probably increase the pace. Although, let’s see how today’s figures will be and not rush to conclusions too soon.