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Investment Bank

Investment Bank

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Our monthly survey on how investors view progress on Brexit shows that the deadlock over the Irish border is weighing on market sentiment.

Politics – not economics – seen as the biggest risk for markets

Since late 2017, the Barclays Brexit Investor Survey has consistently shown that around two-thirds of institutional investors view developments relating to Brexit negotiations and domestic politics as a far greater risk to market sentiment than, say, interest rate uncertainty, employment or wage concerns.

Over the next six months, which of the following do you consider to be the biggest risk to investor sentiment?
Crossing the line: which model aligns with the UK’s post-Brexit wishlist?

Source: Barclays Brexit Investor Survey: The ‘Beast from the East’ vs. Brexit storms, 13 June 2018

Indeed, investors are not so worried about the prospects for the UK economy and do not expect a recession over the next year, except for a small uptick in concern following a spate of weakness in the wake of market volatility in February and March.

What probability do you assign to the risk of a recession over the next 12 months?
Crossing the line: which model aligns with the UK’s post-Brexit wishlist?

Source: Barclays Brexit Investor Survey: The ‘Beast from the East’ vs. Brexit storms, 13 June 2018

Investor fears shift back to Brexit negotiations following lack of clarity over borders and the Customs Union

In early 2018, our research showed that political uncertainty – particularly questions around Prime Minister Theresa May’s leadership – was a growing concern for investors, with a change in parliamentary majority believed to be among the less likely but nonetheless most concerning risks for markets. But it is worries over the actual path Brexit negotiations are taking that are the focus of media headlines – and investors – right now.

Weeks of heated debate within Parliament and a stalemate in negotiations with the EU over the Irish border are increasingly spooking the investor community as the deadline inexorably moves closer: the proportion of investors who believe Brexit negotiations pose the biggest risk to investor sentiment has risen from nearly 30% in February to almost 50% in June – the highest proportion since our survey began.

Expecting severe delays over Ireland and on a final deal

Investor concerns have been exacerbated by the Parliamentary vote on the EU Withdrawal Bill as well as the EU’s rejection of solutions proposed by the UK government so far– including the alternative backstop, a customs partnership and the maximum facilitation (“max fac”) solution for Ireland using technology to minimise delays created by a hard border.

Given this stalemate, it is no surprise that investors expect severe delays over the final agreement. Sixty percent of investors assign less than a 25% probability of the UK and EU agreeing a solution to the Northern Ireland border before the October 2018 EU Summit – and only 3% see agreement as highly likely.

What probability do you assign to the UK and EU agreeing a solution to the Northern Ireland border before the October 2018 EU Summit?
What probability do you assign to the UK and EU agreeing a solution to the Northern Ireland border before the October 2018 EU Summit?

Source: Barclays Brexit Investor Survey: Investors peer through a political fog to consider a broader set of scenarios, 19 July 2018

Risk of the UK crashing out of the EU still considered low – but needs to be monitored

For all these anticipated delays, the risk that the UK will crash out of the EU entirely is still seen to be small. The majority of investors continue to put the probability of the UK leaving the EU without any agreement or further transition arrangement whatsoever at 25% or less. Perhaps reflecting the efforts of both UK and EU officials to avoid this scenario, the percentage of investors that believe a no-deal Brexit is almost a certainty has dropped to just 1%.

What probability do you place on the UK leaving the EU in March 2019 without reaching an agreement, extension or transition?
Crossing the line: which model aligns with the UK’s post-Brexit wishlist?

Source: Global Macro Survey: American Exceptionalism, 10 July 2018

That said, a no-deal scenario cannot, by definition, be entirely ruled out as internal (Parliament) or external (UK-EU) negotiations could still collapse ahead of the March 2019 deadline. The concern now has to be whether a lack of agreement over the Irish border is seen as indicative of Brexit negotiations generally.

If so, it will be interesting to see if and how the perceived likelihood of a no-deal Brexit changes over coming months.

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Related content

The Brexit trade trade-off 

When the UK leaves the European Union, it also leaves the world’s largest single market. We assess which alternative trade scenarios could be viable for the UK, post-Brexit.

Three trade models worth exploring 

A number of non-EU countries have secured trade relationships with the EU that work well for both parties. But only one – the Canada model – aligns with all the UK’s conditions for leaving the EU.

Brexit: Safeguarding the UK’s powerhouse sectors 

Post-Brexit, the most important sectors of the UK economy will require more than just a free trade agreement with the EU to maintain their level of activity.

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About the Brexit Investor Survey

The monthly Barclays Brexit Investor Survey invites clients to give their views on progress of EU-UK negotiations and their likely impact on markets.

The surveys ran on the following dates, collecting views of institutional investors, including hedge funds, money managers, proprietary trading and corporate trading desks:

  • Barclays Brexit Investor Survey: The ‘Beast from the East’ vs. Brexit storms, 13 Jun 2018. Captured the views of 199 institutional investors between 1st – 8th June 2018.
  • Barclays Brexit Investor Survey: Investors peer through a political fog to consider a broader set of scenarios, 19 July 2018. Captured the views of 224 institutional investors between 9th -14th July 2018.

About the Global Macro Survey

The Barclays Macro Survey invites clients to give their views on how markets are likely to develop over the short and long term.

The Q2 18 survey, which was open 11th – 18th June, 2018, captured the views of over 400 clients who responded to a questionnaire on Barclays Live.

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