Uncertainty has been rising in the UK in the past few weeks, and it could cut annual GDP growth by 0.2pp, while pushing companies to stockpile their inventories. Because of this, we increased the probability of a ‘no deal’ scenario. The more this uncertainty persists, the more it damages the economy, resulting in lower investment, negative wealth effects for consumers, and tighter monetary and financial conditions.
We predict a 65% chance for a “Blind Brexit”, that is, a last-minute deal with the EU where both sides are likely to agree on “a FTA with very close ties”. This should pave the way for a transition period by the end of 2020.
Temporary market relief is expected in the aftermath of the agreement, with the pound to euro exchange going back to 1.14 after reaching a low point of 1.06-1.09 at end of 2018