Boris Johnson is now the UK Prime Minister after being voted in as leader of the Conservative Party at the end of July. This followed Teresa May’s resignation earlier this year due to her inability to get the UK parliament to support the Brexit deal she had struck with the EU.
Mr Johnson is a staunch leave supporter and this development has increased the chance of the UK leaving the EU on October 31 in a hard Brexit, with no deal in place.
A hard Brexit
A no-deal Brexit would disrupt trade between the UK and the EU, and would be very unfavourable for both trade and UK businesses, potentially leading the UK into a near-term recession. It could also have flow on effects to the Eurozone at a time when growth is already weak so, all in all, would be a pretty significant outcome.
We rate the chance of a no-deal Brexit at 20-30 per cent, so it is definitely a risk to be aware of.
A revised deal
The UK parliament doesn’t support a no-deal Brexit because of the negative effect it would have on the UK economy, and because of this we think the the UK will strike some sort of revised Brexit deal with the EU, despite the EU’s apparent unwillingness to negotiate further.
However, if a new deal is able to be negotiated it is likely that Brexit – which was originally scheduled to occur on March 29 this year – will be delayed further.
There is still a lot of uncertainty for the UK over the next few months, and there are two other possible scenarios. Firstly, there is a possibility that a new referendum may be held on Brexit, with polls indicating that the result would be very close.
But we believe it is more likely that Mr Johnson will call a UK general election with the hope of a parliament more open to a hard-Brexit being elected, to give him the numbers he needs to pursue his no-deal agenda.
Subscribe to Econosights below to receive my latest articles straight to your inboxDiana Mousina, Senior Economist
While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.
This article is not intended for distribution or use in any jurisdiction where it would be contrary to applicable laws, regulations or directives and does not constitute a recommendation, offer, solicitation or invitation to invest.