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Brexit Strategy: Where Do The UK, EU Stand 3 Years After Referendum?

Brexit Strategy: Where Do The UK, EU Stand 3 Years After Referendum?

The majority of British voters chose to leave the European Union on June 23, 2016. 

The divorce before the United Kingdom and EU hasn't been finalized; what progress has been made in three years?

What Happened

The word "Brexit" is the merging of “Britain” and "exit," and it's now the formal phrase for referring to the U.K. leaving the EU. 

The original plan called for the U.K. to leave the EU on March 29, 2019. After delays, politicians were granted an initial extension of the Article 50 process that continued through April 12, 2019.

EU leaders have now backed a six-month extension until Oct. 31, 2019. It's key to have a deal between the U.K. and the EU in order to ensure a smooth exit from the EU for the business community. 

Political Turmoil

In the 2017 general election, Prime Minister Theresa May lost her House of Commons majority, putting her in a difficult position. May has officially resigned and after several weeks of Conservative leadership hustings, former Foreign Minister Boris Johnson is the new leader and the next prime minister of the U.K. 

“Brexit continues to be a challenge for both the U.K. and EU. There is no easy solution to the current situation and [that's] why the most likely outcome continues to be further delay beyond the oct. 31 deadline," said Tom Lee, the chief investment officer for Parametric Portfolio Associates LLC, an affiliate of Eaton Vance Corp. (NYSE: EV).

Hard Brexit

A hard Brexit will create the most dislocation in the near term and has the potential to have the biggest impact on global growth, Lee told Benzinga. 

“A hard Brexit will likely lead to an increase in volatility across equity, rates and FX markets. I would expect downward pressure on equities and yields," he said.

A delay in Brexit or continuation of the status quo create an uncertain environment, Lee said. 

Most businesses have taken steps to "Brexit-proof" their business, but the uncertainty will make long term investments challenging, the CIO said. 

For Lee, Brexit is just one more example of a trend of reversing globalization that is occurring worldwide, with tariffs being another. 

"Politicians, business leaders and others need to addresses the issues that are driving this reversal. Clearly we understand that globalization has contributed to global growth." 

Sterling Will Remain Fragile

“The path ahead for the British pound is filled with obstacles and more pain as concerns mount over the U.K. crashing out of the EU without a Brexit deal,” said FXTM Global analyst Lukman Otunuga.

The sterling remains one of the sick men of the G10 space thanks to Brexit fears, and this continues to be reflected the currency’s overall performance since the start of July, he said. 

Related Links:

Boris Johnson Will Be The Next UK Prime Minister

As Brexit Woes Continue, Trading Sterling Is Painful


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