The UK’s scheduled departure from the EU is fast approaching. Many observers are hopeful for an orderly withdrawal. But plenty of potential pitfalls between now and Brexit-day which could result in a chaotic divorce.
The only near-certainty at present is that the UK will cease to be a full member of the EU on 29 March 2019. It is possible that Brexit could be delayed, a second referendum called, or UK parliament abandon the project, but at this late stage, and as things stand, these scenarios seem unlikely.
Negotiators are currently working on a “withdrawal agreement”, to be followed by a transition period to run from the end of March 2019 to the end of December 2020. During the transition period negotiations would focus on the permanent future UK/EU relationship, including any potential agreement on trade.
Most aspects of the UK’s EU membership would remain in place until December 2020 under this scenario, including free movement across borders and inclusion within the customs union and single market. However, in the event of no agreement, or a so-called “no deal” Brexit, what happens after 29 March 2019 is uncertain.
What has been the market impact of Brexit to date?
In the period from mid-2013 through to the end of 2015, the UK economy outperformed the global economy, sterling was strong and UK domestic companies outperformed UK overseas earners (see below). Then, as Brexit fears set in and the UK voted to leave the EU, UK domestics significantly underperformed. Exchange rates were a major driver of this, as the market discounted the beneficial translational impact of weaker sterling for companies with significant overseas earnings. However, it was also in large part due to UK domestic companies suffering a “de-rating” (see below for explanation) amid fears the UK economy would grow at a lower rate going forward outside the EU.
Says it all really…..