From the latest Macro View by current Bloomberg macro commentator and former Lehman trader, Mark Cudmore
U.K. Does Brexit Best When It Does Nothing At All: Macro View
With apologies to my compatriot Ronan Keating, there’s a non-negligible and rising probability that Brexit doesn’t happen. Ultimately that would be a positive for U.K. assets.
An eventual divorce agreement is looking less likely even despite negotiations taking a significant step forward recently. And, as it becomes clear that all outcomes lead to a no-deal Brexit, back-tracking entirely becomes relatively more enticing.
Liam Fox has said the U.K. doesn’t want the post-Brexit trading arrangement to be any different than they are now. The EU doesn’t want its citizens’ rights to change. Any alteration to the current arrangements between Ireland and Northern Ireland seems massively problematic.
Taken together, the only divorce settlement those points signal is the softest of soft Brexits. And that’s totally unacceptable to the hardline separationists.
On the Irish border, the red lines of the DUP and the Irish government remain polar opposites. There’s no realistic compromise that can be implemented in practice without the current U.K. government falling.
As these standoffs become clearer in 2018, so will the impossibility of a deal that works for Theresa May’s Conservative Party.
A recent YouGov poll showed 45% of people think Brexit was the wrong decision, with 44% believing it was right. Voters may soon realize that the choice is one between a no-deal Brexit or no Brexit at all. And in the context of a struggling U.K. economy, where real disposable incomes are being squeezed, support for a second Brexit referendum may start to rise.
While there’s bound to be significant volatility on the news flow as such a narrative gains traction, many U.K. investors and companies will cheer the storyline along because they won’t face pressure to relocate and established trade structures won’t be threatened.