Happy New Brexit!

And so begins another year of racing. Autosport International is opening its doors at the NEC, Formula E is in Marrakech, the Formula 1 teams are counting down to pre-season testing in February while fans excitedly contemplate whether this is the year that we treat ourselves with a trip to the races. Perhaps the Hungaroring or Circuit de Catalunya, or maybe you might decide on the best seat in the house, feet up in front of the wide-screen TV within a Williams pitstop of the fridge. Yes, the start of the year is a favourite jumper – reliable, comfortable and with a familiar pattern. The only problem is that this year there is a stain, Brexitshaped, with a whiff – the smell of uncertainty.

Fans considering a trip to the races and team finance directors are puzzling over the exact same conundrum, albeit on different scales. We are all straining to see what the future holds for sterling against the euro, the dollar and a basket of other currencies while trying to set a meaningful budget and a plan for the year ahead.

As it stands, the UK will leave the EU on March 29 2019, with or without an agreed Brexit departure deal. Parliament has set this in UK law, and legislation needs to be passed again for this to be changed. The UK Prime Minister, Theresa May, has negotiated terms with the EU on how the UK will leave. There is, however, one huge issue: her deal leaves the UK open to possibly remaining in the EU Customs Union, which would make the UK unable to sign its own trade deals for eternity. Having had some 117 Tory MPS vote in support of her replacement as Prime Minister, it is by no means certain that Prime Minister May will be able to get her departure deal through Parliament. The vote is currently scheduled for the week beginning Monday January 14, and we could see extreme volatility in the pound between then and March 29.

The difficulty is that there are so many Brexit permutations.

The most probable outcomes include the government losing the vote by a small number (20 to 40 votes) and calling another vote quickly, with the odds suggesting that they could pass the deal.

As a consequence, if that were the case, sterling could rally by

5% on the removal of Brexit uncertainty. However, this strength would probably only last until people start to worry about the trade deal that will then need to be negotiated. Secondly, the government could lose the vote by a large margin and then try to prepare for a no-deal Brexit. This could easily produce a move lower to the psychologically important 1.2000 level for GBPUSD and 1.0750 for GBPEUR.

Further possibilities include the government being defeated and calling an election or even a second referendum. If an election is called and a Labour government elected, considering that the markets don’t trust the Labour party in its current guise, we can expect Sterling to collapse 15% to 20%. If a referendum is called this could lead to the UK possibly not even leaving the EU, which could encourage a 15% relief rally jump to 1.4500 for GBPUSD and 1.2500 GBPEUR. Parliament might take fright and ask the EU for an extension of Article 50. Interestingly, the EU has said that it will only consider an extension if the time is used for another referendum. It’s worth noting that the European Union needs funding and some £39 billion would be gratefully banked.

It could be that the Brexit deal is defeated in Parliament and sterling hurtles lower, while the UK and EU conduct last-ditch negotiations. The UK and EU both have strong motivations for agreeing a deal. We could see a 5% to 10% fall in sterling’s value before March 29, followed by a 10% to 15% relief bounce when a deal is agreed. On the contrary, sterling’s fall could gain pace if a deal isn’t agreed.

For the race fan at home we can hide behind the best seat in the house and put off difficult decisions and wait for Brexit uncertainty to pass like the Daleks. Even the best-funded teams on the grid can be caught out by currency fluctuations. Toto Wolff noted in the Mercedes team accounts that, “There had been an increase of £27.9m in operating costs mainly due to the impact of technical regulation changes and movement of foreign exchange rates.” We’re entering a period of unprecedented uncertainty – not just in terms of what the new aero rules will mean to the status quo on the grid, but in managing budgets at a time when there has never been more pressure on making every penny – or cent – count. The suggestion, then, is this: hedge your currency risk appropriately to manage out as much of that uncertainty as possible, allowing you to set a meaningful budget and move forward with some confidence.