July 18, 2018, 11:44 pm
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Elusive Brexit clarity meets sober economic reality

DUBLIN- Last time British Prime Minister Theresa May returned from a walking holiday, she called what turned out to be -- for her -- a disastrous election.

Not this time, it is assumed. But financial markets and an eager public hoping she can provide some Brexit clarity will probably have to balance it with another week of sobering economic reality.

Less than 20 months out from Britain’s March 2019 exit date from the European Union, May’s government has yet to agree on what kind of divorce it wants, let alone make any meaningful progress on the terms with EU counterparts.

Some detail may come with London expected to publish a number of position papers setting out its negotiating stance on a range of issues ahead of the next round of talks between negotiators in the last week of August.

Whether or not they paint a clearer picture of post-Brexit immigration, trade and regulation remain to be seen -- as does the reaction of the EU itself.

But the latest economic snap shots next week of wages, retail sales and inflation will probably underline the economic challenge gradually building up.

Economists polled by Reuters expect to see inflation tick up to 2.7 percent when figures for July are released on Tuesday before peaking at 2.9 percent in the last quarter of 2017.

By contrast, labor market data on Wednesday will show how far pay increases lagged rising prices. The data is projected to show 1.8 percent year-on-year growth for total wages in the three months to June.

Thursday’s retail sales report, meanwhile is equally as unlikely to brighten economists’ view that the world’s fifth largest economy will expand by 0.3 percent a quarter on average over the coming year.

That compares with 0.4 percent in the EU countries that use the euro, a trend likely to be confirmed by next week’s second quarter gross domestic product releases for Germany, Italy and the euro zone as a whole.

“We expect the next round of key UK data releases to be the final nail in the coffin for a 2017 Bank of England rate hike,” Viraj Patel, currency strategist at ING, wrote in a note.

“While higher inflation figures may keep lingering hopes (for a rate hike) alive, the slowing trend in consumer activity, as well as uncertainty over the degree of slack in the labor market, should keep the hawks at bay.”

The Bank of England cut interest rates to a record low 0.25 percent in the months following last year’s Brexit vote and they won’t be lifted until 2019, a Reuters poll forecast on Thursday, a week after a Brexit-wary BoE cut forecasts for growth and wages.

Amid a similarly packed US economic calendar, talks also get under way on the North American Free Trade Agreement between the United States, Mexico and Canada with markets keeping an eye out -- mainly on US President Donald Trump’s Twitter feed -- for fresh rumblings on trade protectionism.

Renegotiation, or the ditching, of NAFTA was a key campaign promise of Trump’s, who frequently called the 23-year-old trade pact a “disaster” that has drained US factories and well-paid manufacturing jobs to Mexico. - Reuters
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