The past few days have offered investors a sample of what to expect from Sterling and Brexit in the months ahead under new United Kingdom Prime Minster Boris Johnson’s leadership.
A vulnerable British Pound, political drama in Westminster, disagreements with Brussels and rising uncertainty over Brexit will be the key themes enveloping the UK economy this trading quarter. While Johnson has repeatedly pledged to take the UK out of the European Union by October 31 with or without a deal, it remains to be seen how the new PM will conquer the same challenges that led to the resignation of his predecessor, Theresa May.
With Brussels already rejecting Johnson’s plans for a new Brexit deal over summer, the road ahead for the British Pound is filled with many obstacles and potholes.
The economy is already forecasted to be in a technical recession in Q2, according to the UK’s National Institute of Economic and Social Research.
Signs of Brexit eroding its economy continue to be reflected in the manufacturing PMI which fell to 48.00 in June, while services cooled to 50.2 during the same period. Chronic uncertainty over Brexit has shoved the UK economy towards a dangerous tipping point, with a no-deal reality on October 31 potentially kicking the economy over the edge.
With the Bank of England warning since November 2018 that a no-deal Brexit could send the UK plunging by 8%, the shockwaves are seen rippling beyond the UK borders.
Given how the United Kingdom is an important trading partner of the United Arab Emirates, a no-deal Brexit certainly presents various disadvantages and opportunities. The real estate and tourism sector may be caught in the crossfire thanks to fewer UK investments while a depreciating pound is negative for the purchasing power of British people visiting the UAE.
Britain is likely to turn to traditional allies for trade in a no-deal scenario due to restrictions with European markets, which presents an opportunity for the UAE.
According to a UN report, the UAE will see the biggest gain from a no-deal Brexit with profits of around $425 million due to increased exports to the United Kingdom. If both sides are able to forge beneficial trade deals with each other, this has the potential to stimulate economic growth as key services and products from the UK make their way into the UAE.
Given the unpredictable nature of Brexit, anything can happen on October 31. Will the UK end up crashing out of the European Union, will the deadline be extended or will there even be a Brexit? These are the questions on the mind of many investors, whatever the outcome it will impact the UK economy and its trading allies, including the UAE and the Eurozone
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