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With Boris Johnson likely to become prime minster this week, our base case is for another extension to the 31 October Brexit deadline, probably for several months.Boris Johnson looks likely to be succeed Theresa May as prime minister, after the internal Tory party contest. Johnson prominently waves the no-deal Brexit flag (the possibility of exiting the EU without a deal) by the 31 October deadline, in order to get more concessions from the EU – a relatively perilous negotiation strategy.Uncertainty around what Johnson will ultimately do remains very high, as does how events around Brexit will take shape. Our view is that parliament will step up to the plate and resist a slide to ‘no deal’ by default, despite its own lack of cohesion. Our base case is for another extension to the 31
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Team Asset Allocation and Macro Research considers the following as important: Brexit, Macroview, UK sterling
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With Boris Johnson likely to become prime minster this week, our base case is for another extension to the 31 October Brexit deadline, probably for several months.
Boris Johnson looks likely to be succeed Theresa May as prime minister, after the internal Tory party contest. Johnson prominently waves the no-deal Brexit flag (the possibility of exiting the EU without a deal) by the 31 October deadline, in order to get more concessions from the EU – a relatively perilous negotiation strategy.
Uncertainty around what Johnson will ultimately do remains very high, as does how events around Brexit will take shape. Our view is that parliament will step up to the plate and resist a slide to ‘no deal’ by default, despite its own lack of cohesion. Our base case is for another extension to the 31 October Brexit deadline, probably for several months, to renegotiate the withdrawal agreement and/or renew parliament. Ultimately, we think new elections will be needed to get new momentum for Brexit’s next chapter.
The Bank of England (BoE) is increasingly likely to cut rates in the coming year, due to the ongoing global monetary easing mood, no matter how Brexit pans out, and some recent comments from BoE officials go in that direction. We now expect a 25 basis point (bp) rate cut in November (from rates on hold prior).
In the meantime, we remain cautious on sterling in the short term as political uncertainties are unlikely to abate. We adjust our three-month projection slightly to the downside to USD1.23 per GBP. Our 12-month estimate remains unchanged at USD1.30 per GBP.