Weekly Bulletin: The UK Election and Brexit

Rupert Harrison, BlackRock Chief Macro Strategist, on the political implications of the UK election

“It is a hugely significant election result, setting the scene not just for the next five years of British politics, but possible for the next decade. The size of Conservative majority has huge implications. For the first time since 2010, there is real stability. This parliament should last four to five years and given the Labour party’s number of seats, there seems little prospect of them getting into power at the next election.”

“It is also an important personal mandate for Boris Johnson. While he remains a divisive figure, it was his election and he was the front person for the campaign. It gives him the authority to impose his will on the party. He will be less beholden to the European Research Group. He has also won an extraordinary number of seats in the Labour heartlands. These MPs will have a different set of priorities. As such, Boris Johnson is likely to prioritise investment in infrastructure over tax cuts, to focus on science and industrial policy and to take a tough stance on immigration.”

Antony Manchester, BlackRock Managing Director, UK Public Policy, on Brexit

“The Conservative victory gives the executive more power and scope to conduct the negotiations, including on the detail and timing. The EU has said it is not realistic to negotiate within 11 months, but Boris Johnson doesn’t need to go back to the polls any time soon. He can backtrack on the timing without taking a political or electoral risk.”

“The framework for the deal is still essentially a hard Brexit, likely to benefit goods over services. The UK will still be leaving the single market and customs union. The negotiation will be around level playing field obligations to allow less friction on trade. We see some scope for concession with the overall Brexit framework.”

“The EU says it wants a close relationship. It will be disappointed by this result because it means the UK is definitely leaving but may be relieved there is certainty. It has a stable government with whom to negotiate. That said, the scope for a comprehensive trade agreement is limited within both sides’ red lines.”

Week Past

UK manufacturing Purchasing Managers Indices (PMI) (December, final) – UK manufacturing output contracted at its fastest pace since July 2012 at the end of 2019 as the downturn deepened. The Information Handling Services (HIS) Markit/The Chartered Institute of Procurement and Supply (CIPS) Purchasing Managers’ Index fell to 47.5 in December. There was also a sharp reduction in construction output as a result political uncertainty and subdued client demand ahead of the general election. [1,2]

UK services PMI – The UK service sector showed signs of stabilisation towards the end of 2019, with the sharpest rise in new work since last July. Business activity was unchanged in December, following a marginal reduction in the previous month. Job creation and business optimism also improved. [3,4]

US manufacturing PMI (December, final) and The Institute for Supply Management (ISM) manufacturing PMI – both readings showed an improvement in US manufacturing as the trade tensions with China eased. The sustained improvement after weakness in the summer was supported by a solid rise in new business and a further upturn in production. [5]

Eurozone composite PMI – The IHS Markit Eurozone PMI Composite Output Index improved slightly during December, but still signalled weakness in the Eurozone economy. The index hit 50.9, up from 50.6 in November. There was a notable divergence between weak manufacturing and strong services sectors. [6]

Eurozone inflation – Consumer prices rose 1.3% in December year on year, up from 15 in November, boosted by strong pre-Christmas consumer spending. The rise was in line was economists’ forecasts. [7]

Week Ahead

China inflation (December) – Consumer prices are expected to rise to 4.7% year on year but fall to 0.2% month on month. [8]

US initial jobless claims (w/e 4 January) – US unemployment claims are expected to fall to 219,000 from 222,000. [8]

UK Industrial and manufacturing production – Industrial and manufacturing production are expected to show further declines. Industrial production is expected to show a fall of 1.5% year on year in November, down from 1.3% in October, while manufacturing is expected to drop 1.4%, compared to 1.2%. [9]

UK Gross Domestic Product – The UK economy is expected to show no growth in November with pre-election uncertainty weighing on activity.9
US inflation – the US Consumer Price Index is expected to show a rise of 0.3% in December, giving policymakers breathing space on interest rates over the next few months. [9]


  1. UK manufacturing output contracts at fastest pace in almost seven-and-a-half years, Markit Economics, January 2020
  2. Construction output declines again in December, Markit Economics, January 2020
  3. Business activity stabilises during December, helped by a rebound in new work, Markit Economics, January 2020
  4. Business activity growth accelerates to five months high in December, Markit Economics, January 2020
  5. Manufacturing output continues to recover amid further new order growth, Markit Economics, January 2020
  6. Eurozone economy remains close to stagnation at end of 2019, Markit Economics, January 2020
  7. Eurozone inflation hots up on pre-Christmas consumer spending, Financial Times, January 2020
  8. IG Index, week ahead, January 2020
  9. FX Street, economic calendar, January 2020

The opinions expressed are as of January 2020 and are subject to change at any time due to changes in market or economic conditions. The above descriptions are meant to be illustrative only.