Brinkmanship and the “No Deal” Brexit


US President Donald Trump on Monday warned that the proposed agreement allowing Britain to leave the European Union could endanger a future U.S.-U.K. trade deal.  This will no doubt be yet more unwelcome news for Sterling, although the reality is that the draft proposal, widely seen in the UK as a total sellout, is unlikely to progress through Parliament, even with the Prime Minister’s desperation now such that she is resorting to offering Honours & Titles to anyone who will support her. There seems to be some sort of fear of the “No Deal” scenario, which is routinely described as “crashing out”. In fact, it is described in exactly these terms for the sole purpose of engendering negative associations. There is in reality little to fear from this departure, and when placed against the UK’s current commitment to lavish £39bn on the EU in exchange for some vague assurances to be given at an unspecified point in the future, a No Deal exit seems positively idyllic. There are areas where some local awkwardness might occur, but in the bigger picture EU industries are likely to bang a few heads together in Brussels rather than lose access to the lucrative UK markets. With the UK Parliamentary vote coming on 11th December things look dicey for Sterling until then, and in our view the political problems will get worse before they get better. What is really occurring here is brinkmanship, and unfortunately for the UK, in Mrs May the EU have found an opponent who has no idea what game is being played, or probably even at what venue. Sterling remains a Sell on any rally and we will review our position only on a close above 1.30.

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