The bright side of the UK snap election

  • The probability of “soft Brexit” (relative to “hard Brexit”) has increased.
  • Even though domestic political uncertainty weakens UK’s Brexit negotiation power with the EU, a soft Brexit would be relatively good news for the UK economy.
  • The sterling weakened to 1.27 vs USD, but it was not a sharp correction as some expected (1.23 consensus before the election) for the scenario of a hung parliament.
  • Political uncertainty has compressed gilt yield. And yet a softer Brexit should support the UK economy and brings upside in UK gilt yield.
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