Remain or to exit ?

Tuesday 24th May 2016 17:47 EDT

There was more discussion surrounding the Brexit with the release of the results by a poll conducted. The "remain" camp held an eight-point lead over its "leave" rivals in Britain's EU referendum campaign, according to the latest telephone poll from ICM for the Guardian newspaper, published yesterday. The poll found that support for remaining in the union stood at 47 percent, whilst that for the so-called "Brexit" option was at 39 percent and 14 percent were undecided. There has been a long-running trend in opinion polls on the EU referendum issue whereby telephone polls have tended to find a comfortable lead for "remain" while online polls have suggested a closer race, with "exit” in some cases. The entire British polling industry failed to predict the Conservative Party's outright win in last year's general election. This illustrates the unreliability of the polling system.

Retailers and pay experts also pointed to a subdued outlook in other reports published on Monday. Uncertainty is looming over global growth, particularly around weakening emerging markets and the outcome of the EU referendum, which Carolyn Fairbairn CBI'S general director said is "chilling some firms' plans to invest,". The CBI said it now expected Britain's economy to grow by 2 percent a year this year and next, down from forecasts of 2.3 percent and 2.1 percent made in February and below the long-run average. It based its forecasts on an assumption that Britain would stay in the EU. This also echo’s the Bank of England’s recent reduction in growth forecasts on Thursday to 2.0 percent growth this year and 2.3 percent in 2017 and said the economy would slow more sharply, and possibly even go into a short recession, if Britain votes to leave. The UK’s consumer pricing index showed inflation fell in April for the first time since September, largely because of cheaper air fares after the Easter holidays. The Office for National Statistics (ONS) said the rate dropped to 0.3% and the main causes were falls in the prices of air fares, vehicles, clothing and social housing rents.

The largest downward effect came from air transport, with prices falling by 14.2%, compared with a rise of 4.5% between the same two months last year. This was influenced by the timing of the Easter holidays in March.

Yesterday we also had more positive employment data in the UK with 31.58 million people in work, up 44,000 from the previous quarter taking the employment rate to a record high of 74.2%. However the Office for National Statistics (ONS) has said the jobs market could be "cooling off".

The pound continued its positive move higher following  better than expected retail sales figures, despite Brexit fears, consumer spending is still growing. The Bank of England has said its next move on the monetary policy would be an increase in interest rates; many investors have been concerned of the systemic effects of a Brexit and the impact this could have on the UK economy.

These concerns are to such extent that many market participants were beginning to price in a rate cut should a Brexit materialise – however these concerns have since been eased given the recent poll showing more favour of a vote to remain.

The US monthly CPI grew to 0.4% against an expected level of 0.3%. This is significant as the cost of living in the US has now grown, in the month of April, by the greatest amount in three years. More than half of the rise in consumer inflation stemmed from a recent bump in the cost of gasoline. Rent was another major contributor, accounting for about one-fourth of the increase. This is an indication that inflation is heading towards the levels that the Federal Reserve are seeking. The Federal Reserve is likely to give US interest rates another hike next month, according to the minutes of its latest policy meeting published this evening. Unless the economy is blown off course, The US Fed is gearing up to raise interest rates for only the second time since the financial crisis when they next meet on 14 June.

The Fed's Federal Open Market Committee (FOMC) "judged that if incoming data was consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen, and inflation making progress toward the FOMC's two percent objective, then it likely would be appropriate to increase the target range for the federal funds rate in June".

 The dollar strengthened following the comments of a possible rate hike in June despite Philly Fed manufacturing index coming out worse than previous at -1.8 against a previous of -1.6.

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