Getting ready for a no-deal Brexit
With just a few weeks left till the UK leaves the European Union (EU), the newly-elected UK prime minister Boris Johnson has added an unexpected and controversial move to the Brexit saga – to suspend parliament.
The Brexit referendum has already claimed the tenures of two prime ministers. Pressure on Boris Johnson is mounting as 31 October, which marks both Brexit as well as the day Jean-Claude Juncker and Mario Draghi relinquish their roles as Presidents of the European Commission and the European Central Bank respectively, draws closer.
To date, UK corporate earnings have been supported by two main factors: a weakening GBP and increasing overseas income. The top-13 listed entities derive some 70% of their revenue from beyond the UK and EU.
At the going rate, a no-deal Brexit seems to be the default outcome – the EU and its 27 members have remained adamant about the UK leaving the trade bloc since the Referendum began in 2016. This could prove crippling to corporate earnings, household income, and the domestic economy which is already skirting near recession. A mismanaged situation could well see shortages in food, medical, and gasoline supplies; disruptions to seaports, airports, as well as cross border trades; and more importantly, further deteriorations to the already fragile pound.
We believe there will be further downside to the UK and EU.
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