At the moment, it still remains uncertain how the UK will leave the European Union (EU).
With the UK parliament yet to agree how it will leave the EU, it’s possible that the 29 March Brexit deadline may even be extended. But assuming parliament does agree the terms for this landmark event, a ‘soft’ Brexit at this stage seems most likely.
In January UK Prime Minister Theresa May’s initial Brexit plan was defeated in parliament, and the next major step is for the UK parliament to agree a new withdrawal agreement, which is the document that sets out how the UK will leave the EU over the next two years.
Overall, the UK parliament is pro-Europe, which bodes well for a ‘soft’ Brexit, in which the UK would remain part of the single market and customs union. This would be a positive outcome for British businesses and economic growth.
A ‘hard’ Brexit, in which the UK would no longer be part of the customs union, risks a UK recession and a potential half to one per cent hit to Eurozone growth.
We believe the present uncertainty about the UK’s place in Europe may flow through to UK equities and the British pound sterling over the near term.
The impact to Australia is likely to be minimal given local exports to the UK only make up 1.4 per cent of all exports, based on 2018 numbers. Nevertheless, Brexit could prompt global volatility in markets and a hit to investor confidence.
While there’s a slim chance the UK could go back to the people and hold another referendum on whether or not Brexit should proceed, consensus is it will go ahead. Markets are looking for guidance about what the deal will look like, and its timing, to help support UK and also EU asset values.
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