No deal scenario hits pound
Published on 31.10.2018 13:28

The British pound has recovered somewhat in today’s trading session after falling down below the $1.27 mark yesterday against its US counterpart as the market grow’s increasingly nervous on the possibility of a no deal scenario regarding Brexit.

Apart from all of the other problems a no deal situation is likely to cause, some analysts predict that the UK could fall into a recession, which would mark the 2nd one since the financial crisis of 2008 which would really help to extend the pound’s losses

“No Brexit news appears to be weighing on the pound as the clock keeps on ticking and politician edge ever so closely towards a now deal,” said Rodrigo Catril, Senior FX Strategist from the National Australia Bank.

“S&P overnight noted that the risk of a no-deal outcome had increased sufficiently to become a ratings consideration, and the ratings agency forecast a moderate recession in the event of no-deal.” He added.

The major hurdle for the formation of a deal between Britain and the EU is the question surrounding the border between Ireland and Northern Ireland.

One possibility floating around is that Northern Ireland will remain in the customs union after Brexit, which will essentially allow the free movement of goods, but at the same time create a border in the Irish sea which would effectively seal off Northern Ireland from the rest of the UK regarding trade

This scenario is unacceptable to the DUP party of Northern Island which is currently supporting the current UK government of Prime Minister Theresa May, and they say if a deal goes ahead the includes the 2 Ireland’s remaining in the same trading block, they will remove support for the current government which would trigger an early election and throw the UK into political turmoil.

"Brexit agreement over safeguarding against a hard border for Northern Ireland is proving elusive. It is impossible to see how, without that, a Withdrawal Agreement will be reached. For businesses, the longer the delay, the greater the uncertainty," says Brian Martin, Senior International Economist with ANZ Bank in London.

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Andrew Masters

Analyst

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