Brexit uncertainty will linger throughout 2020 – Nordea

Morten Lund, analyst at Nordea Markets, points out that Tories secured a solid absolute majority at yesterday’s election in the UK which should pave the way for a ratified divorce deal in January.

“Uncertainty will linger due to following trade negotiations, keeping the BoE on hold and making the GBP vulnerable. In line with polls and our expectations, the Conservatives and Boris Johnson secured an absolute majority at yesterday’s election. The majority is estimated to be at the upper range of projections at 78 seats, ie 364 seats out of 650, and thereby much bigger than the 28-majority suggested by the otherwise much-trusted YouGov poll (the only poll to predict the Tories losing their majority in the 2017 general election). Labour, on the other hand, had a disastrous election. Compared to the 2017 general election, the party lost 59 seats and now only has a total of 203 MPs in the House of Commons. Labour leader Jeremy Corbyn has consequently decided to resign, although he will continue in the short-term until a new leader is elected. The SNP had a solid election gaining 13 seats which increases the pressure for a new Scottish independence referendum (although the Tory win should still rule out a vote in 2020/2021). On the other hand, Liberal Democrats lost 1 seat and furthermore did not get their Leader, Jo Swinson, elected. The election results should have a clear impact on the Brexit end-game. All the Conservatives MPs have pledged to vote for BoJo’s divorce deal and given the large majority, there is even room for several MPs to potentially rebel. Therefore, we stick to our base case since April that the divorce deal will be ratified in 2020, and that that the UK will therefore leave the EU by 31 January. We give this scenario a 90% probability, while a no-deal scenario has around 10% probability.”