Increased UK Tail Risks for Gilts and GBP

Sean Maher of Entext reckons tail risks are now rising for long-dated gilts and the GBP. Previously he’d taken a sanguine view of the UK referendum result last summer, because it simply wasn’t a systemic event for global markets, but since the election less than two weeks ago, he’s changed his mind. Moreover, helped by a Eurozone rebound, the economic fallout from the referendum was likely to be delayed, but it is now becoming apparent as real wages and retail sales soften, writes Maher. Add to that, UK voters have had enough of austerity, and there is now the growing prospect that Labour could come to power with a radical, interventionist agenda should the minority Conservative government implode under the stress of Brexit negotiations. Indeed, if this were to happen, a UK government would no longer be constrained by EU state-aid and competition regulations after 2019, so it could tax, nationalize and subsidize with nothing much to impose discipline apart from the bond market. Entext research can be purchased on RSRCHXchange.