Disruptive no-deal scenario could weaken the UK equity market and pound
UK equities and sterling could both suffer a double-digit hit to their value from a disruptive no-deal Brexit, according to a new financial stress test.
In the event of a disorderly departure from the European Union, UK equity markets and the pound relative to the dollar could weaken by 15 per cent and 10 per cent respectively.
Read more: Is Brexit making Britain a bargain for foreign investors?
The findings, published in the MSCI’s new Brexit stress test, also predicted that corporate bond markets could be hurt by any disruptions.
“In short, equity markets would drop, with the UK bearing the largest impact. Sovereign yields would decrease in the UK and Europe, while corporate spreads would widen. Both the pound and euro would lose value relative to the dollar,” MSCI said.
Depending on whether a deal is reached, the impact on the UK equity market may range from -15 per cent to +10 per cent, while the pound might lose 10 per cent or gain eight per cent relative to the US dollar.
Prime Minister Boris Johnson has vowed to take Britain out of the EU with or without a deal by the end of October.
Read more: Government warned SMEs they can’t live off ‘kind promises’
The pound is now 17 per cent cheaper than prior to the 2016 referendum, when Britain voted to leave the EU.
Both UK and European equity markets have underperformed global markets during the last three years, according to MSCI.
The figures come a day after the new boss of the International Monetary Fund (IMF) delivered a dramatic assessment of global growth prospects.
Kristalina Georgieva declared that “the global economy is now in a synchronised slowdown” following a turbulent year which included trade conflicts, Brexit uncertainty and mass protests in Hong Kong.