ANALYSIS: Come what May, are the odds stacked against our new PM?

Added 12th July 2016

Market expectations are pricing in a 77% chance of a rate cut when the MPC meets on Thursday; there were similar odds on France beating Portugal in last Sunday’s Euro 2016 final.

ANALYSIS: Come what May, are the odds stacked against our new PM?

As the past fortnight has taught us, the market is liable to sometimes get its predictions very wrong indeed.

Still with the FTSE 100 on something of an unexpected post-Brexit day surge, the monetary policy committee (MPC) would be very brave to sit tight this time around.

In a way, it’s quite perverse for investors to be so focused on a cut as small as 25bps. Worryingly, it would also give our central bank less armour should we slip into recession.

Guy Foster, head of research at Brewin Dolphin, sees the any cut by the Bank of England as a “symbolic gesture of support for the economy” while turning attention to the bigger issue, the collapse of sterling.

“The pound remains at levels not seen since 2013 on a trade-weighted basis and buys fewer dollars than it could do at any time since the mid-1980s,” he stresses.

"Theresa May will know herself the scale of the task ahead to appease anxious UK and overseas investors"

While global markets may soon their attentions away from Brexit and towards the upcoming US presidential election, Clinton and Trump have been somewhat, er, trumped by the shock announcement of the UK’s new Prime Minister this week.

While her appointment seems to have been welcomed by the markets, Theresa May will know herself the scale of the task ahead to appease anxious UK and overseas investors.

For Edward Smith, asset allocation strategist at Rathbones, while the appointment of an experienced front-bencher as prime minister may help to place a ceiling on economic uncertainty, it is unlikely to do anything to lower it.

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Gary Shepherd

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Gary joined Last Word Media in 2009, becoming editor of Portfolio Adviser a year later. Previously, he worked at Incisive Media with roles across its Professional Adviser, Investment Week, Bloomberg Money and Mortgage Solutions titles. Gary has been shortlisted for various awards, winning Headline Money Investment Writer of the Year in 2010.

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