When the British public made its surprising decision to leave the European Union, the UK and Europe gave themselves almost three years to come up with mutually satisfactory terms for a clean and amicable divorce. Who would have believed that by now, with Brexit day less than five months away, we would be no closer to such a deal than we were back in 2016?
Leading economists in the EU say that the probability of March 29 rolling around with no deal in place is now at around 40 percent, and with every passing week, that likelihood is steadily increasing. With a no-deal Brexit now a distinct possibility, what would be the implications for the economy, and in particular, for those who have money tied up in UK stocks?
Chaos and uncertainty
Any investor will tell you that if there is one thing markets don’t like, it is uncertainty. The confusion surrounding Brexit is bad enough as it is, but if the UK’s severance from the EU is on a no-deal basis, that uncertainty is in danger of descending into chaos.
The status of some legal contracts between UK companies and their trading partners will become obscured, and UK professionals working in the EU might find their ability to work compromised. There is also the fact that Britain would find itself subject to the EU’s external tariffs, which could all but bring its economy to a grinding halt.
The implications for those with money tied up in UK stocks are all too easy to envisage. Sterling is likely to take a hit on March 29 whatever happens, but if there is no deal in place, it could easily be a fall of four to five percent. The potential impact on the UK stock market will be enough to ensure investors have their stocks broker on speed dial or their trading apps constantly open as they look to cash in their assets. Conservative estimates suggest that the FTSE 100 could see a drop of five percent. If that happens, it will be the biggest drop in a single day in more than 10 years.
Those who have chosen to invest in other markets will not be immune from the effects of Brexit. It is worth remembering that following the referendum, the Dow fell by more than 600 points. Furthermore, a low-value pound has a knock on effect that makes US stocks more expensive. In other word, a no-deal Brexit could have serious implications for investors across all markets.
Time is running out
It is one thing to have March 29 in our minds, but the reality is that this is the date that the UK will actually leave the European Union. It is no use arriving at a deal the day before that happens, so there is even less time than we might think.
The EU has indicated that it wants a deal to be agreed before the Brexit Summit on November 17. That seems all but impossible, and failing that, the UK government has its own deadline of January 21 on its radar. If agreement is not reached by then, Parliament will be empowered to step in, and Brexit could take an entirely different direction.
Looking on the bright side
ly, a no-deal Brexit is a worst case scenario. But despite the growing uncertainty, it is still more likely than not that a deal will be reached. When that happens, the economies in both the UK and EU will know what they are facing and can breathe a huge sigh of relief. If the exit terms are in everyone’s interest, we could just see the stock market soaring.