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 places a 40 per cent probability on a general election taking place, coupled with a further Brexit delay. Photograph: Reuters

ING places a 40 per cent probability on a general election taking place, coupled with a further Brexit delay. Photograph: Reuters

 

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.

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