Brexit: Heaven or Hell?
Just last week Tusk warned of a 'special place in hell' for those who backed Brexit without a plan”
Article 50 is close, the 29th of March is just over a month away and yet it seems some are losing their cool. Perhaps Mr Tusk suggesting that ordinary Hell is not quite good enough for some UK politicians, won't prove to be particularly helpful to the process!
So why do you want another opinion on Brexit? As someone who was a Bank trader for 15 years and who still trades the market, I might have some insight.
First of all, will we have a “hard” or “soft” Brexit and what will it mean?
In my opinion, the balance hangs on the “backstop”. Put simply, if the UK leaves on March 29th, the backstop allows for the finer details of a trade agreement to be negotiated. The biggest issue appears to be the Irish border, because Northern Ireland and Southern Ireland currently have an open border. So, either you have customs checks, which means that it isn’t an open border, or you have checks between Northern Ireland and UK, and then you have border checks within the UK. Sounds like an impossible situation; what’s needed is some sort of compromise.
If you’ve been watching any news, then you will have noticed that the politicians on either side, don’t appear to know what the word “negotiation” actually means.
Is there any hope? Of course, this was always going to go to the 11th hour. They will probably agree to some sort of compromise at the last minute…if we can stand the tension!!
So, what does a “soft” Brexit mean for the UK. Well that depends on the deal. If it allows the UK to trade reasonably tariff free with Europe and other countries - that’s a great deal. If it’s a deal where the UK remains in the Customs Union and can’t trade with other parts of the world easily, then in the long term, is it really any different to what the UK has now.
I’m a trader not an economist, so perhaps I am better off giving my opinion on what this might mean for the Pound. As I write GBP/USD is trading at 1.2900. I believe that any sort of “soft” Brexit is good for the Pound. You will see 1.40 very quickly and probably pre-Brexit levels; that’s 1.50 plus within a few months.
A “hard” Brexit, which might mean the UK has to adopt WTO (World Trade Organisation) rules to trade with Europe, and therefore higher tariffs will mean higher import costs, some food shortages (no lettuce in your burger, so nothing too serious) and therefore inflation. The pound will fall - 1.20 first stop and probably lower than that. There’s even an outside chance of an all time low where the pound reaches parity with the dollar…1:1.
This is all short term. A pound that low would mean UK products would be ridiculously cheap. Expect a rebound, maybe very quickly, perhaps over the next year or two.
A third possibility is that “The can is kicked down the road, no decision is made, and Brexit is put off; who knows for how long. Markets think this would also be good for the pound, as it would only occur if a “no deal” “hard Brexit” was taken off the table.
I agree short term, the pound would rise, but be careful! I believe even more uncertainty might actually weigh on the pound in time.
So, whatever happens, there will be opportunities for traders to make money and the UK and Europe will probably be less affected than everyone fears.
Only time will tell if the UK outside of Europe would be a success, but in the short-term, Brexit probably isn’t Heaven or Hell, but like most things in life, somewhere in the middle.
Remember, this just my opinion and shouldn’t be taken as investment advice!