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As Brexit Deadline Approaches, What's Next For UK?

As Brexit Deadline Approaches, What's Next For UK?

The U.K. is preparing for the possibility of a no-deal Brexit, and it should be "the top priority" for civil servants, Prime Minister Boris Johnson informed them in a letter, according to the BBC.

US Backs Brexit 

Rebel MPs could try to make a move to stop a no-deal Brexit in the second week of September.

Johnson has said he would prefer a deal with the EU, but has also indicated that this "may not happen." 

President Donald Trump’s national security adviser John Bolton has also informed the U.K. prime minister that the U.S. administration will strongly back the U.K.’s exit from the EU in late October, deal or no deal.

Bolton said the U.S. supported a no-deal Brexit and added that Washington would propose an accelerated series of trade deals.

Deals could be done on a "sector-by-sector" basis, with an agreement on manufacturing being first, according to BBC reports.

The deadline for Brexit is Oct. 31. 

UK 'Halfway' To Recession?

According to one analyst, the U.K. is halfway toward a technical recession.

“A technical recession is defined as two consecutive quarters of contraction … and the specter of a no-deal Brexit has flung the United Kingdom halfway there," said Lukman Otunuga, senior research analyst at FXTM.

Fears over Britain’s economy falling into a recession were elevated after U.K. GDP unexpectedly contracted by 0.2% during the second quarter of 2019.

These concerns have certainly not been kind to the British pound, which has recently hit 10-year lows against the euro.

“With appetite for the pound diminishing by the day as Brexit uncertainty and recession fears haunt investor attraction, the EURGBP is positioned to push higher. Prices have the potential to test 0.9350, should 0.9250 prove to be a reliable support,” Otunuga said. 

'An Odd Sort Of Recession'

Despite the volatility in the pound, U.K. inflation remains on target, employment is at record highs and real wage growth remains in positive territory, said Richard Conway, director at JCRA. 

The central bank is openly considering tightening policy in the medium-term, he said.

"The government is in spending mode too. It would make for an odd sort of a recession.”

Price Action

The iShares MSCI United Kingdom Index (NYSE: EWU) was higher by 0.74% at the close Tuesday, while the Vanguard FTSE Europe ETF (NYSE: VGK) was up 0.81%. 

Related Links:

'No End In Sight:' Boris Johnson's Brexit Prep Breaks The Pound, No-Deal Scenario Likely

How Weakness In The British Pound Could Impact S&P 500 Earnings


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