FrontierView recently launched The Lens, a weekly newsletter published by our Global Economics and Scenarios team to highlight developments and trends that will have the highest impact on business scenarios. Below is an excerpt from this week’s edition highlighting the most recent changes in Brexit negotiations.
Key Takeaways on a Potential No Deal Brexit
The Conservative party leadership race will conclude on July 22, and the 160,000 members of the party will select the new prime minister, likely to be Boris Johnson. Time for the new leadership to deliver Brexit is limited, as the October 31 Brexit deadline is approaching. FrontierView assumes an extension of article 50 to allow time for negotiations, an increased risk of no-deal Brexit before Q4 2019, and early elections in 2019.
Our View
Polls show that the Brexit party is gaining strong popularity. The new Conservative PM will attempt to appeal to his base by adopting a confrontational stance with the EU. However, a policy course towards No Deal Brexit could trigger a Labour-led no-confidence motion in parliament, causing a snap election. New elections, triggered by the new PM or a no-confidence motion, are a base case assumption ahead of Q4, accompanied by an article 50 extension of 3-6 months.
Business Implications
Businesses need to enhance their contingency plans and continue to create buffers for their supply chains to safeguard their businesses from the adverse consequences of the eventuality of a No Deal Brexit. FrontierView adjusted the GBP:USD rate toward depreciation for 2019-2020 in light of heightened political uncertainty. Firms are unlikely to see considerable improvements in sales even with a retreat in inflation due to prolonged business and economic uncertainty.
FrontierView clients: See our Brexit Scenarios Update report for further insights