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The week looks rather slow as far as economic data is concerned. The only exception being the RBNZ’s meeting this week and the Bank of Mexico interest rate decision. On the political side of things, the EU and the UK will kick off Brexit talks starting today. Here’s a quick recap of this week’s events and what to expect.
Brexit talks to start on June 19
Nearly one year after the Brexit referendum was held and the UK voted to leave the EU, both parties are set to meet at the negotiating table. The UK had formally triggered Article 50, which is a requirement to being the exit process.
While the EU looks to be well prepared, the political uncertainty on account of calling the snap elections in June by the Theresa May government is likely to put the UK at a weaker position.
There is clearly no strategy or leadership in the UK, which will make the Brexit process rather prolonged. The Conservatives continue to maintain the majority, however, they are short of the full majority required to form the government.
In the event that there is some consensus and a coalition is formed, the Conservative Party will need to be accommodative to its coalition parties in order to agree on any strategy.
Given the circumstances, expect a bit of volatility in the British pound. The economy is also likely to come under pressure as inflation rises sharply, but the wages are failing to keep up with the pace. This squeeze on households is likely to impact spending which could, in turn, affect the GDP of the UK.
The Bank of England is already in a policy dilemma with interest rates near 0.25% while some policy makers voted last week in favor of hiking interest rates.
RBNZ to stay on the sidelines
The Reserve Bank of New Zealand (RBNZ) will be meeting on Wednesday. Economists expect to see no major changes from the central bank as far as interest rates are concerned. Therefore, the RBNZ’s Overnight Cash Rate (OCR) will remain at 1.75%.
