There is growing talk of the EU suspending its trade deal with the UK, should the British government make unilateral wholesale changes to the Northern Ireland protocol. However, fresh Brexit uncertainty may actually not have as big a market impact as perhaps presumed. Economists at ING expect EUR/GBP near 0.8500 at year-end.
The return of Brexit may not be dramatic for sterling
“On paper then, an increased layer of uncertainty and the reintroduction of a negative economic tail risk is bad news for UK markets. But there are a few reasons why the return of Brexit may not be dramatic for sterling.”
“Could another round of Brexit headlines demand the kind of 5% 'no deal' risk premium seen in 2019? We suspect the impact on GBP is more muted this time around.”
“With UK CPI heading to the 5% area into April, keeping BoE tightening prospects on the front-burner, we are happy with an end-year EUR/GBP target near 0.8500, and lower levels as 2022 progresses.”
