Strategy & economics
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.
This article is issued by Cazenove Capital which is part of the Schroder Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested. This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements. All data contained within this document is sourced from Cazenove Capital unless otherwise stated.