Brexit risk is not the only fire that UK Prime Minister Johnson is currently having to fight. Scottish independence is back on the agenda and tensions are rising between Westminster and some northern regional leaders over COVID-19 restrictions. UK political disharmony is threatening to spill over into 2021 and, given also the difficult economic backdrop, GBP could be in for a rocky, post-Brexit ride, as per Rabobank.
Key quotes
“Criticism over the handling of the coronavirus crisis by the Johnson government has highlighted divisions not just between Scotland and England but between Westminster and various regions in the North of England. The implication is that political disharmony in the UK and specifically pressure on PM Johnson will continue well into next year. This suggests ongoing scope for volatility in GBP and limited upside potential.”
“Even after December 31, the sour tone of UK politics is unlikely to sit well with investors. On top of this the UK economy and its public finances will be badly damaged by the crisis and the debate about the potential for a negative Bank rate remains in the background.”
“After some near-term volatility, we see scope for EUR/GBP to head down to 0.89 on a three-month view on the assumption that the UK and EU will put in place some sort of Brexit deal ahead of December 31. That said, we are not confident that GBP will be able to regain much poise in the New Year.”
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