UK Crash Brexit revisited

While a crash Brexit is not our base case, the path towards PM Johnson’s declared goal – a deal with the EU without a backstop – remains unclear. A further delay may be necessary and PM Johnson may be stepping down. A care taker government could either bring a deal to a 2nd referendum or resort to snap elections.

  • Focal Point

Highlights:

  • While a crash Brexit is not our base case, the path towards PM Johnson’s declared goal – a deal with the EU without a backstop – remains unclear. A further delay may be necessary and PM Johnson may be stepping down. A care taker government could either bring a deal to a 2nd referendum or resort to snap elections.
  • Opinion polls see Tories plus the Brexit Party broadly on par with opposition parties, keeping the risk of a hard Brexit alive. In such a case, we expect GDP growth to suffer by 3.5 pp of GDP compared to baseline until 2021.
  • Despite the current low yields, a no-deal Brexit would trigger a new broad-based downward shift of sovereign yields on safe haven flows, a worsening economic outlook and an even more aggressive monetary policy accommodation
  • EUR/GPB would be headed towards parity, while also EUR/USD would decline on safe haven flows.
  • European stocks would suffer severely. The more defensive UK FTSE100 should outperform due to firms’ high organizational flexibility, international exposure, undervaluation vs EA and an already cautious investors’ positioning.

Read the full publication below.

UK CRASH BREXIT
REVISITED
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