UK Conservative leadership unlikely to have a sigficant impact on the pound – Danske Bank

The final round of the Conservative Party leadership election is coming up with foreign secretary Liz Truss and former chancellor Rishi Sunak being the two final candidates. Economists at Danske Bank look at how the election matters for fiscal policy, monetary policy and EU relations

EU-UK relations could reemerge as a theme for markets

“We expect substantial fiscal easing if Truss wins. This could add further upside pressure on inflation and yields.”

“We expect the GBP FX impact to be limited in our base case although the potential for higher rates could add slight support.”

“We do not expect that the EU will remain passive as the NIP Bill is passing through government. In the worst case, EU could terminate the free trade agreement (FTA), which would effectively reset the no-Brexit clock and the risk of a trade war. A renewed rise in tensions between the EU and the UK would most likely pose a significant headwind to UK assets and hence GBP.”