UK: Brexit – A last-minute extension of Article 50 (again)?

3 min
Ana Boata
Ana Boata Senior Economist for Europe

A no-confidence vote in PM Boris Johnson’s government is very likely to be called in the week of 03 September as the opposition wants to avoid a “no deal” scenario on 31 October. Given his weak majority (one seat if the 10 DUP MPs support him) and in the absence of a change in his Brexit hard stance, we believe he would lose the confidence vote. This would give him 14 days to form another government or try to win another confidence vote. There is a high chance that this process ends up with a cross-party majority and general elections (and potentially also a second referendum). Hence, this would favor an approval of another extension of Article 50 by the EU, probably until Q3 2020. However, we continue to give a 40% probability to a no-deal scenario. The high level of uncertainty disturbs the well-functioning of the UK economy. Looking at declared company intentions, contingency stockpiling should accelerate in Q3 before causing another GDP contraction in Q4 (-0.3% q/q). Consumers are also preparing for a no-deal since Q1. Hence, downside risks to our +1% real GDP growth forecast in 2020 have increased.