There could be good news on the horizon for UK consumers as JP Morgan Asset Management predicts some relief from crippling inflation - if Brexit negotiations go well.
JP Morgan’s EMEA chief market strategist Karen Ward expects a Brexit deal to be agreed by the end of 2018 that preserves trade in goods and services, with ‘considerable implications’ for UK markets.
‘We would expect to see a broad-based increase in sterling, which would in turn lower UK inflation at a time when real wages are rising,’ comments Ward.
Inflation is currently 2.3%, driven higher by rising fuel prices, and remains higher than the Bank of England’s 2% target.
The positive outlook could extend into next year as unemployment is currently at a multi-decade low and interest rates could rise twice next year, after a forecast increase in November of 0.25%.
CAUTIOUS OUTLOOK ON US
Outside the UK, a potential global trade war is the most concerning source of geopolitical risk for JP Morgan as it could impact the outcome of US midterm elections.
Midterm elections in November are important as the outcome could impact the US Congress.
The whole House of Representatives and a third of the Senate are up for grabs.
Depending on how well both the Democrats and Republicans perform, the result could make it easier or harder for either party to pass or block new laws.
‘This uncertainty alone argues for a more cautious approach to risk until the outlook is clearer,’ says Ward.
