Brexit “fog”

February 2019

The possibility that Brexit might be delayed beyond its 29 March deadline drove sterling to its highest level against the euro for almost two years during February. Brexit-related uncertainties have intensified, according to the Bank of England (BoE), and the UK economy is set to grow by only 1.2% this year, compared with an earlier forecast of 1.7%.

  • The UK economy posted its slowest annual growth since 2012 in 2018
  • The manufacturing sector weakened
  • A “no-deal” Brexit could lead to credit downgrades

To view the series of market updates through February, click here


The possibility that Brexit might be delayed beyond its 29 March deadline drove sterling to its highest level against the euro for almost two years during February. Brexit-related uncertainties have intensified, according to the Bank of England (BoE), and the UK economy is set to grow by only 1.2% this year, compared with an earlier forecast of 1.7%. BoE Governor Mark Carney warned: “The fog of Brexit is causing short-term volatility in the economic data, and more fundamentally, it is creating a series of tensions”. In particular he highlighted tensions for businesses, for households, and for financial markets. Nevertheless, he also emphasised: “Whatever form Brexit takes, the world will still turn” .

“Whatever form Brexit takes, the world will still turn” (BoE Governor Mark Carney)

The UK economy grew by 1.4% in 2018 as a whole, posting its slowest annual rate of growth since 2012. Manufacturing output and car production fell. Over the final three months of 2018, the economy contracted at a quarterly rate of 0.4%. The economy expanded by 1.8% in 2017.

Over February, the yield on the benchmark UK government bond edged higher, climbing from 1.24% to 1.25%. During the month, however, it fell as low as 1.15% as the BoE cut its forecast for the UK’s economic growth, making the possibility of higher interest rates appear even more remote. Meanwhile, the yield on the short-dated gilt – which matures in 2021 – rose from 0.79% to 0.85% over February. 

Disruption caused by a no-deal Brexit could materially undermine the competitiveness and operational performance of some companies, according to S&P Global Ratings, and could lead to credit downgrades for some companies. Companies in the automotive, leisure, retail, real estate, aerospace & defence, and transport infrastructure sectors are likely to be particularly vulnerable, although ratings in the banking sector could be placed under pressure by a rise in insolvencies and, in the longer term, by a decline in asset quality and activity. 

Brexit-related uncertainties led UK manufacturing companies to stockpile raw materials at the fastest rate for 27 years during January, according to IHS Market/CIPS. UK supply chains are moving “closer to breaking point”; growth in new orders is losing momentum, and jobs in the sector fell for only the second time since 2016. Elsewhere, the UK services sector languished in January, and new orders posted their first decline for two and a half years.


A version of this and other market briefings are available to use in our newsletter builder feature. Click here


Get In Touch

Find Us On Map