Analysts at Wells Fargo, still think a deal regarding Brexit will be reached and ratified by EU and UK parliaments before the March 2019 deadline, and they expect the pound to move higher on balance over the coming weeks and months if that expectation is realized.
Key Quotes:
“After months of continued uncertainty surrounding Brexit negotiations, recent media reports suggest that policymakers have reached an agreement on the final issue regarding the Irish border, meaning a withdrawal deal may be finalized at an upcoming E.U. summit. Although recent developments are a promising sign for the ultimate outcome of negotiations, a final deal may not be approved by the U.K. parliament until early 2019. While we still see a final agreement being reached by the March 2019 deadline, we also look for Brexit uncertainty to remain after this timeframe, which could limit U.K. economic growth prospects and potential upside for the pound.”
“Economic growth in the U.K. has proved lackluster in recent quarters, with real GDP growth remaining below 2% year over year since the initial referendum. Business investment remains depressed, and even if a withdrawal deal is reached before March 2019, the next step of negotiating a more comprehensive U.K.-E.U. trade deal could continue to weigh on business sentiment.”
“In our base case scenario where a deal is reached before March 2019, we look for a modest pickup in economic growth compared to this year and for the pound to move higher in coming months. Given a successful withdrawal deal, we then look for the BoE to gradually resume its tightening path in the second half of 2019.”
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