Pro-no-deal-Brexit Johnson & Sterling


Brexit: There continues to be a dearth of anything approaching what might be called a substantive development. But there are signs of what the tone of “final” negotiation into the revised October 31st Brexit deadline will be.

First off, the Conservative Party’s leadership looks set to deliver Boris Johnson as the new prime minister. His lead over his one remaining rival, Jeremy Hunt, looks unassailable. The new leader will be announced on July 23rd. Boris is a staunch Brexiteer, favouring leaving the EU without a deal on divorcing terms or any outline of a future trading relationship, which would rule out any economic transition phase.

In the event this would see the UK adopt a WTO tariff schedule and trading terms overnight, which would be an unprecedented move by a developed nation and would cause a substantial deterioration in the UK’s terms of trade position. The idea is that the UK would then be free to negotiate trade deals, though this process would take years.

Johnson has said that he doesn’t in fact want to leave without a deal, but is nonetheless serious about doing so if necessary, which is red meat to the Brexiteer political base. Recent polls have suggested that a new general election, with Boris as the Tory leader, would return the Conservatives with up to a 40 seat majority in Parliament.

A new general election looks like a strong possibility, as soon as September. The Tories are presently a weak governing entity, leading a minority government in a Parliament intent on halting a no-deal Brexit scenario (weakening the government’s negotiating position with Brussels, in the eyes of Brexiteers).

Given the polling, the new Prime Minister would surely be very tempted to resolve this by calling a new general election. This backdrop should keep the Pound under pressure.

Cable printed a fresh 6-month low at 1.2455, which matches the 15-month low, while EURGBP printed a 6-month peak seen at 0.8996. A 1.6% y/y contraction in the BRC retail sales figure for June today, which thwarted the consensus forecast for a 0.8% rise, is the latest in a series of underwhelming data out of the UK, providing fresh fuel for the pronounced declining motion the UK currency has been seeing since early May. EURGBP has now made this the eighth week out of the last nine where a new higher high has been set.

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Andria Pichidi

Market Analyst

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