Brexit: A messy divorce says Paul O’Connor, Head of Multi-Asset at Janus Henderson Investors

Official Brexit talks resume this week, with little sign of any progress being made towards compromise and no apparent softening of position on either side. Time is running out for a deal to be established by the year-end deadline, when the transition period expires and the UK effectively exit’s the EU.  While the Prime Minister asserts that the UK will “prosper mightily” with or without a deal, it seems more likely that a no-deal exit would hit the UK economy hard in the short-to-medium term and would also energise the movement in favour of Scottish independence.

Still, brinkmanship and bluffing have been typical features of every stage of Brexit negotiations and a last-minute deal remains quite possible. However, even if a deal does emerge, it is unlikely to come before many weeks of hostilities and threats of a “no-deal” outcome. Any deal that is bodged together at the last minute is likely be fairly narrow in scope, focusing largely on avoiding tariffs and quotas in manufacturing, with limited coverage of the service sector. That would amount to a fairly hard Brexit.

Currency markets have paid little attention to Brexit news flow in recent months, with attention focused instead on a wide range of competing global macro, policy and political developments. As the focus shifts back to the negotiations, investors will be reminded that the most likely outcomes here are for either a bare-bones Brexit or a “no-deal” exit, neither of which look constructive for sentiment on UK growth and assets. The upside in sterling seems limited, while this fog of uncertainty overshadows the UK economy and fiscal policy remains on a tightening path. It would be no great surprise if today’s drop in sterling was the start of a more meaningful move lower.

For further information or to arrange an interview, please contact:

Stephen Sobey
Head of Media Relations
Janus Henderson Investors, 201 Bishopsgate, London, EC2M 3AE
T +44 0207 818 2523 M +44 7836 631 776 E stephen.sobey@janushenderson.com
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