EVEN though the clock is now ticking as the end March deadline approaches, we think a non-deal Brexit scenario is unlikely for a range of reasons.
Firstly, this is simply how ‘things are done’ in Europe, second as the deadline approaches the incentive structure facing MPs is beginning to change and we are now seeing some signs that the Labour leadership, the DUP and select Tory Brexiteers are taking less inflexible stances.
Thirdly, and perhaps most importantly, we do not believe that Parliament, the British people and businesses in particular do not desire a no-deal Brexit. However, if it were to occur, we believe that the economic damage could be severe.
READ MORE: On the brink of Brexit: Less time but more questions
Disruption to supply chains for manufacturing and wholesale and retail would be considerable as would the level of confusion regarding trade, travel and the rights of overseas students, to name but a few issues. The economic hit to the UK would be considerable, and there would also be a negative spillover to the EU economy, which is already weak with Italy, France and even Germany struggling to show positive growth.
In the event of this scenario we would expect that the response from central banks, both the Bank of England and the European Central Bank would be forceful in terms of liquidity provision. In the short-term at least, a no-deal Brexit would deepen risk aversion in financial markets.
We would also expect the many negative outcomes of a no deal Brexit to quickly corral politicians back to the negotiating table.
Michael O’Sullivan is chief investment officer at Credit Suisse’s international wealth management division
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