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Brexit: decision time

November 2018

UK government bonds and the pound remained hostages to Brexit in November as the UK finally agreed a Brexit deal with the EU. Although the agreement was backed by the Cabinet, it is doubtful whether it will manage to clear a vote in the House of Commons on 11 December and the EU has confirmed that it will not consider a renegotiation of the terms of the agreement.

  • The yield on the benchmark gilt rose as high as 1.57% during the month
  • The UK economy grew by 0.6% QoQ during Q3
  • The EC expects the UK’s economic growth to lag that of every eurozone member state by 2020


UK government bonds and the pound remained hostages to Brexit in November as Prime Minister Theresa May finally agreed a Brexit deal with the EU. Although the agreement was backed by the Cabinet, it is doubtful whether it will manage to clear a vote in the House of Commons on 11 December. The EU has confirmed that it will not consider a renegotiation of the terms of the agreement; therefore, if the deal does not receive enough support from MPs, the UK will face political upheaval and the prospect of no deal, or even no Brexit at all.  

 “Sterling was further destabilised by the BoE’s downbeat assessment of the impact of Brexit”

The yield on the benchmark government bond fell from 1.26% to 1.23% over November, but rose as high as 1.57% during the month. Meanwhile, the yield on the short-dated gilt – which matures in 2021 – declined from 0.73% to 0.71%.

Sterling was further destabilised by the Bank of England’s (BoE’s) downbeat assessment of the impact of Brexit. The pound ended November at €1.12 against the euro and below US$1.18 against the US dollar. The BoE examined the impact of a range of possible Brexit scenarios, but BoE Governor Mark Carney warned that there is “little monetary policy can do to offset the potentially significant hits to productivity and supply that Brexit could entail”. The BoE predicted that a “disorderly” Brexit could tip the UK economy into recession deeper than that experienced during the global financial crisis, drive up unemployment, and trigger a plunge in sterling and property prices. Mr Carney said: “Our job is not to hope for the best but to prepare for the worst”. Nevertheless, on a brighter note, the BoE believes the UK’s banking system is “strong enough to continue to serve UK households and businesses in the event of a disorderly Brexit”.

The UK economy posted quarter-on-quarter growth of 0.6% over the three months to September, underpinned by activity in the construction and manufacturing sectors. According to the latest forecasts from the European Commission (EC), the UK economy is tipped to expand by 1.3% in 2018 and by 1.2% in 2019 and 2020. In comparison, the eurozone’s economy is expected to grow by 2.1% this year, slowing to 1.9% next year and 1.7% in 2020. By 2020, the UK’s economic growth is forecast to lag that of every member state in the euro area.


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