Search ForexCrunch

After months of difficult negotiations, the UK and European Union (EU) have agreed on the terms of a post-Brexit trade deal just days ahead of the end of the UK’s transition period with the EU on December 31. The deal removes some downside risks to growth in 2021. Economists at HSBC remain constructive on UK equities. Furthermore, reduced Brexit uncertainty may boost investor appetite for UK assets.

See: GBP/USD to trade broadly sideways next year – HSBC 

Key quotes

“The deal should limit the scope for further major disruption at the UK/EU border in the new year period, which would have hit trade and economic activity.”

“For now, the challenges posed by the pandemic remain substantial and overwhelm other economic and geopolitical considerations. Both economies are facing major short-term headwinds amid a resurgence in virus cases and fresh restrictions, but the outlook for later in 2021 remains positive as the pandemic is likely to subside.” 

“We remain constructive on UK equities. UK indices have lagged wider market performance in 2020, and are relatively exposed to cyclical sectors (financials, materials, industrials) and the health of the global economy (via multinationals). We think this implies significant scope for catch-up in 2021 with the global economy recovering from the pandemic as vaccines are rolled out (with the UK well positioned in this respect).”

“Reduced Brexit uncertainty may boost investor appetite for UK assets. Policy uncertainty is ebbing away, and further Brexit clarity can contribute to this trend continuing next year.”