The politics of Brexit have enveloped the UK, and have negatively affected UK growth. However, as recent current-account data shows, things are less bad than originally feared. The top-left chart shows that net investment into the UK has continued to rise. The total value of UK assets held by foreigners has risen by more than the total value of assets held abroad by UK entities. This is despite a weaker GBP, which supports the value of foreign assets held by UK entities. We can also see in the top-right chart that people in the UK have not allowed Brexit or a weaker pound to dim their zest for foreign goods, with total imports hitting a record high. Still, the goods deficit continues to outperform the services surplus, which is a major issue if the UK leaves the EU without a comprehensive trade deal. Portfolio investment in the UK (purchases of stocks and bonds) also hit its highest level since 4Q08.

Further we have pointed out that, despite Brexit-related concerns, the housing market in the UK is looking up, barring a no-deal catastrophe (bottom-left chart). Nonetheless, the coast does not yet look clear for the currency. The last chart shows sterling should still face headwinds over the next year. We also highlighted last week how GBPUSD options may not be fully pricing in Brexit-related risks.

(Click on image to enlarge.)

Source: Bloomberg, Macrobond and Variant Perception