UK: Politics to remain at the forefront – Westpac

Tim Riddell, senior market strategist at Westpac, suggests that Brexit is still the paramount issue in UK and it became more acute as opposition parties fumbled attempts to foster cross-party support to block a no-deal.

Key Quotes

“This week PM Johnson irked EU-27 by suggesting that the Irish “backstop” be dropped as he prepared to visit Berlin, Paris and G7’s Biarritz summit this weekend.”

“The maths of UK politics mean that gaining support for any Brexit stance is difficult, if not impossible. However, a withdrawal treaty without a backstop might just gain support. Unfortunately it won’t wash with EU-27. UK has persistently underestimated the cohesion of EU-27 and their support for Ireland and this is unlikely to alter unless no-deal risks become too high for comfort.”

“Oddschecker’s no-deal probability has risen from sub20% in May to over 40% now. Bloomberg’s Brexit Barometer may suffer periodic discrete moves, but it displayed deterioration (higher) into August.”

“GBP is unlikely to sustain rebounds unless a break in the backstop impasse can be found. Although some sound GBP support appears to have been found at recent extremes (GBP/USD below 1.20 and EUR/GBP above 0.93), no-deal downside risks clearly remain.”