A steady group of the most powerful people in the United Kingdom have been intensifying its warnings to the markets regarding the risk of a no-deal Brexit, which is also known as a hard Brexit. However, a group of economists and bank strategists says that the final result of a hard Brexit is not likely.
This week, Jeremy Hunt, the foreign secretary of the United Kingdom, said that the nation should start preparing for a no-deal Brexit. His comments came hot off the heels over Mark Carney, the governor of Bank of England, and Liam Fox, the international trade secretary, who are both separately stating that the probability of a no-deal Brexit is likely increasing. Meanwhile, the European Union and a senior British regulator released a warning to insurers and banks regarding the same matter. The government of Theresa May, the British Prime Minister, is also set to roll out a no-deal Brexit advice.
However, in a recent note, Deutsche Bank strategists Sukanto Chanda and Panos Giannopoulos said: “Whilst hard Brexit is not our (or our economists) call, and in fact we do not think that the news flow has been significant to raise the probability of hard Brexit, we nonetheless acknowledge that the noisy path to a deal will likely lead to bouts of increased speculation.”
The strategists emphasised the fact that despite all the “political noise” regarding a no-deal Brexit has increased speculations that this will likely be the result of the discussions, they say that “it is not clear to us whether the probability of hard Brexit has actually gone up.” They also said that while everyone has focused on the comments of Carney that the possibility of a no-deal Brexit is “uncomfortably high,” it was taken “slightly ‘out of context’” since he also said during the same interview that the probability of the United Kingdom leaving the European Union without a deal was “a relatively unlikely possibility, but it is a possibility.”
They stated: “Essentially, Carney implied that any probability of hard Brexit above zero is uncomfortably high given the significant negative implications it entails … Our view has been that of a soft Brexit but with a volatile path leading into it.”
Meanwhile, the director of economics at Credit Suisse, Sonali Punhani, echoed the thoughts of the Deutsche Bank strategists.
She stated: “Our central scenario remains that a soft Brexit is more likely than the UK crashing out without a deal, though the risk of the latter has gone up. In our view, the parliament will likely rule out a no deal Brexit.”
She added: “But it seems increasingly likely that the path by which we get a soft Brexit has to involve considerable UK domestic political stress. This could involve parliament rejecting the final deal which in turn could lead to a general election, second referendum or leadership change.”