Economist – Investment Strategy & Dynamic Markets
Boris Johnson is now the UK Prime Minister after being voted in as leader of the Conservative Party at the end of July. This followed Teresa May’s resignation earlier this year due to her inability to get the UK parliament to support the Brexit deal she had struck with the EU.
Mr Johnson is a staunch leave supporter and this development has increased the chance of the UK leaving the EU on October 31 in a hard Brexit, with no deal in place.
A hard Brexit
A no-deal Brexit would disrupt trade between the UK and the EU, and would be very unfavourable for both trade and UK businesses, potentially leading the UK into a near-term recession. It could also have flow on effects to the Eurozone at a time when growth is already weak so, all in all, would be a pretty significant outcome.
We rate the chance of a no-deal Brexit at 20-30 per cent, so it is definitely a risk to be aware of.
A revised deal
The UK parliament doesn’t support a no-deal Brexit because of the negative effect it would have on the UK economy, and because of this we think the the UK will strike some sort of revised Brexit deal with the EU, despite the EU’s apparent unwillingness to negotiate further.
However, if a new deal is able to be negotiated it is likely that Brexit – which was originally scheduled to occur on March 29 this year – will be delayed further.
There is still a lot of uncertainty for the UK over the next few months, and there are two other possible scenarios. Firstly, there is a possibility that a new referendum may be held on Brexit, with polls indicating that the result would be very close.
But we believe it is more likely that Mr Johnson will call a UK general election with the hope of a parliament more open to a hard-Brexit being elected, to give him the numbers he needs to pursue his no-deal agenda.
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