Brexit update: A constitutional crisis in the making?

The latest developments in Brexit raise the odds of a no-deal Brexit come October 31.

What are the latest Brexit developments?

UK politics has been thrusted toward potential chaos, after the Queen approved UK Prime Minister Boris Johnson’s request to suspend Parliament from as early as September 9, to October 14. Critics of the move have accused the Prime Minister of attempting to stifle Brexit debate – and a potential set of circumstances by which a no-confidence motion could be table in Parliament to bring about an early General Election. Prime Minister Johnson denies the accusations, but there is little doubt that a suspension of Parliament for this long would limit the opportunity MPs have to debate Brexit, and subsequently raise the risk of a “Hard Brexit” come October 31.

Why do they matter for financial markets?

The consensus opinion in the financial markets right now is that a “hard” or “no-deal” Brexit would wreak havoc on the UK economy. Whether that point be right or wrong, market participants are behaving in such a fashion that suggests that would prove true. And the reasoning for this is hardly irrational: the last quarter’s GDP print from the UK showed a contraction in growth. Only another successive quarter of negative growth in the UK economy would be required to bring about a technical recession. Given the short-term shock a “hard” Brexit would bring to UK economic activity, the risk of recession ought to be considered, at the very least, uncomfortably high.

How is it impacting the Pound Sterling?

The higher chance of a technical recession in the UK economy is leading to greater bets in financial markets that the Bank of England will have to cut interest rates soon. As it currently stands, the interest rate futures curve is suggesting that a rate cut will come from the Bank of England by the end of the year. The Pound Sterling has sold-off on this basis, pushing back towards the 1.21 level. Given the long-term trend lower in the Pound, recent developments simply risks accelerating this existing downtrend. The recent multi-year low at 1.2015 comes in sight now, with a break below 1.20 possibly on the cards in the near future.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Trading around Brexit

Find out how the UK’s exit from the EU continues to affect traders, and discover:

  • The unique opportunities in a ‘hard’ and ‘soft’ Brexit
  • The markets you should be watching
  • Everything that’s happened so far

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.