According to analysts at ING, the European Union has decided to allow a further six-month extension to the Article 50 Brexit negotiating period, but big questions remain over whether this will be long enough.
Key Quotes
“The upshot is that this period may not be long enough to break the deadlock in the UK.”
“This means that the headwinds that have plagued the UK economy over recent months will continue to keep a lid on growth, given that firms are likely to use the extra time to continue ‘no deal’ preparations. For that reason, we no longer have a Bank of England rate hike pencilled in for 2019.”
“The extension is likely to be marginally more negative than positive for GBP. Not only is the Bank of England less likely to raise rates, the possibility of a Conservative leadership battle during the third quarter means there is a clear risk that:
- Little will change on the Brexit front before the new October deadline
- The perceived odds of a hard Brexit may marginally rise in response to future eurosceptic leadership candidates.”
“The latter should be negative for GBP in 3Q19. We’ve adjusted our EUR/GBP forecast accordingly and expect EUR/GBP to test 0.88 in Q3.”
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