Sterling seen falling to parity with euro in no-deal Brexit scenario

ING says Article 50 extension followed by UK general election is ‘most likely’

ING, one of Europe's larger banks, said a no-deal Brexit would send sterling down to parity with the euro and push it down to $1.10 against the US dollar.

“We think the most likely scenario is one where parliament back a no-confidence motion and force an Article 50 extension at some point in October, setting the scene for a general election in late November or December,” ING said in a note to clients.

“We’d put a 40 per cent probability on a general election taking place, coupled with a further Brexit delay.”

A revocation of Article 50 would send sterling up to $1.45, ING said. Against the dollar, sterling on Wednesday was steady at $1.2059 and against the euro it was unchanged at 92.67 pence.

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This came as it emerged that UK inflation had picked up in July. The UK consumer price index rose 2.1 per cent year-on-year last month from 2 per cent, above some forecasts. The Bank of England’s inflation target is 2 per cent.

Interest rates

Higher inflation would normally translate into higher interest rates, and therefore a stronger currency, but with the potential for a no-deal Brexit rising as the October deadline approaches, the Bank of England is likely to remain in a wait-and-see mode until there is clarity, analysts say.

Sterling has taken a beating as some investors have ratcheted up their expectations about a no-deal Brexit while others are expecting increased political uncertainty in the coming months. – Reuters