Brexit deal reaction: recession averted?
We do not have the full details of the deal agreed between the UK and EU as yet, but if the deal passes through parliament on Saturday we should see stronger growth in the UK economy as the cloud of Brexit uncertainty lifts.
Importantly, this is a big step toward avoiding a no-deal Brexit where the UK would have crashed out of the European Union (EU), possibly causing a damaging recession.
To get the deal through parliament the prime minister (PM) will require the support of the hard-core Brexiteers (European Research Group), the 21 Tory rebels expelled from the party and around 17 Labour MPs, on the basis that the Democratic Unionist Party (DUP) votes against it.
However, assuming the vote goes through, we will move into a transition period until at least the end of 2020. During which time the UK and EU will start to hammer out a trade deal.
There will still be some uncertainty about the UK’s future relationship with the EU; nonetheless, the likelihood of avoiding a no-deal is increasing. As this tail risk fades sterling can be expected to rally further and gilt yields rise as investors anticipate a better economy and a firmer monetary policy.
Of course, if the deal fails in parliament on Saturday we are back to where we started. Either way PM Johnson is likely to call a general election.
Azad Zangana, Senior European Economist and Strategist, looked at the economic impact of various Brexit outcomes in the Economic & Strategy Viewpoint earlier this month.
- What can the Covid-19 crisis teach us about tackling climate change?
- Covid-19 poses temporary setback to the energy transition
- European multi-asset: is there anywhere to hide?
- Has the S&P already reached its low for this recession?
- Why pension funds should consider impact investing
- The three most contrarian trades in the stock market
The views and opinions contained herein are those of the Authors, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds.
This document is intended to be for information purposes only. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide, and should not be relied on for, accounting, legal or tax advice, or investment recommendations. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. No responsibility can be accepted for errors of fact or opinion. Reliance should not be placed on the views and information in the document when taking individual investment and/or strategic decisions.
Past performance is not a reliable indicator of future results, prices of shares and the income from them may fall as well as rise and investors may not get back the amount originally invested.
Schroders has expressed its own views in this document and these may change (to be used if the 1st statement above is not being used).
Issued by Schroder Investment Management (Europe) S.A., 5, rue Höhenhof, L-1736 Senningerberg, Luxembourg. Registered No. B 37.799. For your security, communications may be taped or monitored
The forecasts stated in the document are the result of statistical modelling, based on a number of assumptions. Forecasts are subject to a high level of uncertainty regarding future economic and market factors that may affect actual future performance. The forecasts are provided to you for information purposes as at today’s date. Our assumptions may change materially with changes in underlying assumptions that may occur, among other things, as economic and market conditions change. We assume no obligation to provide you with updates or changes to this data as assumptions, economic and market conditions, models or other matters change.