Chart 58: The dip in UK policy risk is likely to be short lived if the Govt keeps to its commitment to trigger A50 in Q1 without providing clarity on its negotiating position 1200 —— UK Economic Policy Uncertaint 1000 i «=== (German Economic Policy Uncertainty 800 600 400 200 0 Lea foe) Lo?) OQ — N oO = wo i<e) Lond foe] Lop) OQ ~~ N oD a WwW io) Lop) oO Lop) OQ OQ OQ OQ OQ tm) Oo OQ Qo OQ = ae aa = = — — oO ao Lop) oO oO o>) =) co) oO oO tm) o>) =) oO oO oO oO oO oO oO ~_ _ ~~ N N N N N N N N N N N N N N N N N Source: Bloomberg Building inflationary pressures point to post-Christmas consumer squeeze The third act in waiting for Brexit is cost-push inflation from the fall in GBP. So far, consumer spending has held up far better than most expected, especially retail spending by the over 50s. But there is evidence the inflationary canary is starting to sing. The charts below show that the move in CPI has lagged sharp rises in manufacturing output prices, utility prices and food prices in the past two months. Chart 59: Firms report sharp increases in Chart 60: Chunky utility price increases on the Chart 61: Food prices are key to watch output prices horizon 14 40 66.0 6 140 es Natural gas phice, 6 50 12 eased 120 mon fa 10 49 30 62.0 | \ 4 400 = Natural gas price, sot, 40 Food input prices, % 12m/12m 35 8 % yoy, lagged 3 20 58.0 80 30 months (rhs) | é 2 ems (P| utilities, % yoy ( Sho 6 54.0 } mye 60 50 4 10 \ 0 40 2 15 50.0 ; 0 i i i 20 10 0 | 2 46.0 0 5 2 40 0 - eee Vanufacturing output prices . -20 42.0 (PMI, lagged-3 months) 4 5 ad ee (dustrial goods inflation (rhs) “40 -10 6 -20 38.0 q 6 60 15 SS5SS8 RE See 5 sssss2S5& 2 28<5 @xr PMP wR SEFRRARRARAR oO oOo ao oO oO oO oO oO SSN AN ON OS SON SN NNN NN N NN Food input prices calculated as an average of domestically Source: BofA Merrill Lynch Global Research, Markit, ONS. Source: BofA Merrill Lynch Global Research, ONS, Bloomberg produced and imported food. BofA Merrill Lynch Global Research, ONS. To understand this d