May lowers risk of ‘hard Brexit,’ says analyst
British Prime Minister Theresa May has offered lawmakers a vote that would prevent the United Kingdom from tumbling into a disruptive “hard Brexit” and instead delay its exit from the European Union.
As the likelihood of an orderly departure from the EU strengthens so too does the argument for investors to avoid pulling out of the beleaguered U.K. market — at least for now, according to some analysts.
“If anything at the moment, pulling out of the U.K. is the worst thing you could do because the market has gotten down on the U.K.,” said Peter Westaway, chief economist at Vanguard.
Placing the probability of a “no-deal Brexit” at just five per cent, Westaway argued “there are enough sensible heads around the table” to prevent that outcome.
“All the doom and gloom in the market is probably a little misplaced,” he told reporters.
The British pound surged Tuesday as May promised members of parliament three crucial votes. The first will decide whether the U.K. will leave the EU on March 29 under the terms of her deal — an arrangement that has so far failed to win the support of lawmakers. The second vote will decide whether to leave with no deal — a so-called hard or “crash” Brexit. Should that option be rejected, a third vote will determine whether to ask the EU for a delay in departure by up to three months.
The vote on May’s deal would occur by March 12 with the additional votes occurring in the following days. “I don’t want to see an extension,” May said, adding that any delay to Brexit should be “as short as possible.”
A hard Brexit would shave up to two per cent off the U.K.’S gross domestic product in 2019 and prompt a drop in the sterling, said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London. But the likelihood of that happening is now far more remote at about 10 to 15 per cent, he said.
“A delay looks inevitable, the PM has flagged that up as a realistic probability today,” said Stretch.