United Kingdom: no-deal Brexit unlikely to lead to fiscal ruin

A no-deal Brexit (NDB) has been our core scenario for some time now. The lat est developments support this view, even though all options remain on the table, as the United Kingdom is experiencing a political crisis like never before and there are constant twist s and turns (can anyone be sure Boris Johnson will still be the Prime Minister two months from now?). However, in the event of a no-deal Brexit, our view is that authorities on both sides of the Channel will be determined to limit the negative effects to the greatest extent possible . For this reason, we expect a managed no-deal Brexit, as opposed to a disorderly exit of the United Kingdom from the European Union. A managed no-deal Brexit won’t prevent the United Kingdom from slipping into recession, but it would be far less severe than the one triggered by the 2008 financial crisis. Its impact on public finances would be far more limited than in 2008 and subsequent years. Based on our assumption s , at it s highest, PSNB should be around 3% of GDP in the next fiscal year. If the new Chancellor of the Exchequer succeeds in his exercise in damage limitation, Gilts should continue to behave virtuously, profiting from an easing of the Bank of England’s monetary policy and a favourable global environment.