Global online trading and investment company Saxo has released its annual Outrageous Predictions for 2025.
In Saxo’s series of ‘outrageous predictions’ for 2025, Saxo’s Chief Macro Strategist John J. Hardy predicts as Europe’s economy struggles, fresh fiscal policy winds are blowing in the UK, driving sterling back to levels versus the euro not seen since before Brexit.
Hardy notes that these are a series of predictions that, while highly unlikely, could just happen. And if they did, they would send shockwaves across the financial markets. They are not official forecasts but rather suggestions to spark discussions and challenge consensus.
“The UK outlook is as constructive as ever in the post-Brexit era. That is, it is the most positive relative to the sick man of Europe, which is, well . . . Europe, or at least the core Eurozone countries, France and Germany,” says Hardy.
“Fresh fiscal policy winds are blowing in the UK, where the new UK Labour government announced budget priorities ahead of 2025 that avoided the most growth-damaging types of tax hikes on income, while trimming the least productive public sector spending in moving to shrinking its deficits.
“By cutting unproductive subsidies like winter fuel aid for pensioners, encouraging investment in the property and manufacturing sectors and raising incomes for public sector workers, the UK is primed for solid nominal growth in the years ahead, keeping the Bank of England policy rate at a high level compared to major global peers.”
On the European continent, Hardy notes that the situation couldn’t be more different. France has a “dysfunctional government” that is mired in a five-year exercise of getting its out-of-control budgets in order. It has already announced growth-killing taxes on personal and corporate income and austerity.
“Shield your eyes. Meanwhile, Germany remains the sickest of the sick in Europe, unwilling to debt finance desperately needed domestic investment in housing and infrastructure that it could easily afford. Its former economic model of cheap Russian energy inputs to drive its huge industrial base and manufactured exports lies in ruins,” Saxo’s Chief Macro Strategist says.
“And its non-luxury car producers have been rendered uncompetitive by both high energy input costs and China running away with new EV battery technology and gobbling up a dominant global export share in the critical auto sector. Germany must find a new way — but that is perhaps an outrageous prediction for 2026. . . . In 2025, sterling rises through 1.27 versus the euro, the level it traded ahead of the Brexit referendum, thus erasing its entire post-Brexit vote discount.”
Potential market impact? “Encouraging domestic investment and a more robust growth outlook support sterling versus the flailing euro, seeing the Euro/Sterling rate fall as low as 0.7500, below the rate the day before the Brexit vote at 0.76. The UK FTSE 100 posts a strong performance,” Hardy adds.
Write to Adam Orlando at Mining.com.au
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