The United Kingdom has less than 50 days to leave the United Kingdom and the risks of a no-deal Brexit are increasing. To investors, this scenario presents huge risks that most of them are now offloading their UK stocks.
UK companies on the other hand have been forced to increase their stocks from the European Union. For traders on the other hand, the risks for a no-deal Brexit increases the potential profits they will make because of the volatility that will happen.
This article explains the key scenarios and what to expect.
No deal Brexit
This is the most challenging of all scenarios. This is because it will mean that the UK will cease being a member of the European Union, without a deal in place on how trade will be.
This will lead to confusion among government agencies, citizens, and businesses.
For example, at the border in Dover, it will take days for a truck to pass from one side to another. This is because a tradition that has existed for more than 20 years will be disrupted! It will also lead to a sharp deterioration of the sterling and UK stocks. Those from around the world too will be disrupted because the UK remains the financial capital of the world.
Further, agricultural crops like cocoa that are traded in sterling too will be affected. In addition, there is a likelihood that the UK will sink into a recession as more companies leave the United Kingdom.
Already, many companies like Airbus, Land Rover, and Nissan have announced that they will leave the UK.
As the uncertainty continue, expectation is rising that Theresa May will be forced to extend the period of exiting the European Union. Investors will take this with a sign of relief because it will avert the likelihood of a no-deal Brexit. However, it will also send a signal that the current confusion will continue.
This is because the current deal has taken two years to negotiate, there is worry on what will change in the next period. In addition to this, the European Union will have a vote in May, which could influence the decision of European leaders.
This is an unlikely situation because of the differences in the house of commons. The Labor party has already indicated that it will not support Theresa May’s proposal.
Last week, the leader submitted a demand of what he needs from Theresa May. Some of these demands have already been rejected by the prime minister.
Second, Theresa May’s party has divisions too with a good number of members vowing not to support the chances of a soft Brexit. There are others who want to strike a deal across party lines. If such a deal is reached, it will remove one of the risks that have been mentioned by policymakers and business executives.
It will then lead to a sharp increase in UK stocks, the euro, and other global equities. With Brexit done, investors will then continue to focus on other global issues such as trade and monetary policy.
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