Uncertainty will moderate the UK sterling rally

Subject

Influence of Brexit on financial markets.

Significance

Prime Minister Boris Johnson's letter to the EU requesting another Brexit delay (although he still hopes to leave by October 31) has injected more uncertainty into financial market trading. Investors see the Brexit outcomes as binary: either a chaotic departure, triggering a dramatic sell-off in UK assets, or an orderly withdrawal, triggering a rally.

Impacts

• The FTSE 100 index has fallen 7% since July 3 and UK equities are likely to remain unpopular as much uncertainty will persist post-Brexit.
• Monthly data suggest that UK GDP is on track to avoid recession in the July-September quarter, but it will struggle to stay on this track.
• Sterling will fall if there is a no-deal exit, offsetting trade barriers, but exporters will see little benefit amid weak global growth.