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|23 January, 2019

Will Brexit 'Plan B' impact the UAE?

Lukman Otunuga is a research analyst at FXTM. A keen follower of macroeconomic events, with a strong professional and academic background in finance, Lukman is well versed in the various factors affecting the currency and commodity markets. Lukman holds a BSc (hons) degree in Economics from the University of Essex, UK and an MSc in Finance from London School of Business and Finance, where he studied corporate finance, mergers & acquisitions and the role of international financial institutions.

Website: www.forextime.com

At present, markets appear to be ruling out the prospect of a 'hard Brexit'.

The endless uncertainty revolving around Brexit and political drama in Westminster has certainly placed investors on an emotional rollercoaster ride.

In the latest developments to the Brexit saga, UK Prime Minister Theresa May has unveiled her ‘plan B’ to Parliament.

The muted market reaction to May’s speech came as no surprise, especially when considering how MP’s described the ‘plan B’ as ‘Plan A’ in disguise.

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With the Prime Minister once again rejecting calls for a second referendum and refusing to rule out leaving the EU without a deal in place, nothing much has changed from ‘Plan A’.

Although vows were made to find solutions to the Irish border puzzle, this old news has left investors who were expecting a meaningful plan empty-handed. With Theresa May scheduled to debate her deal in Parliament at the end of January, the pound is poised to remain extremely volatile and highly reactive to Brexit newsflow.

Although it seems markets are still ruling out the possibility of a hard Brexit, one must always expect the unexpected when dealing with Brexit. A hard Brexit outcome possesses catastrophic consequences for the United Kingdom as untold levels of uncertainty cripple the British pound.

While the UAE’s economy may be shielded by the shockwaves created from Brexit, some industries such as real estate and tourism will be caught in the crosshairs. The UAE’s real estate sector is likely to be pressured by a decline in UK investments. In regards to tourism, a weak pound is seen impacting the purchasing power of British people visiting the UAE. However, with most nations in the Middle East pegging their currencies to the dollar and a sizeable amount of revenues in the region derived by oil, downside shocks stimulated by pound volatility are likely to be limited.

In the medium-to-longer term, a hard Brexit has the potential to reinforce trade relations between the United Kingdom and nations in the Middle East. If both nations are able to secure beneficial trade deals with each other, this has the potential to boost economic growth as essential services and products from the United Kingdom smoothly make their way into the UAE with greater ease.

A scenario where the UK ends up staying in the European Union will also positively impact the UAE due to the removal of a major element of uncertainty. It must be kept in mind that the UAE is the UK’s 12th-largest trading partner and a highly attractive destination for investments from the UAE.

Stability in the UK will be good news for the GCC business environment in terms of trade and investment.

However, with uncertainty over the unpredictable nature of Brexit still a major theme, the outcome of the parliamentary debate, vote and what to expect after remains open to question.

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

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© Opinion 2019

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