No-deal Brexit will ‘spread chaos’, warns Invesco

Invesco, the US asset manager, has warned that the UK crashing out of the European Union without a trade deal will “spread chaos”, spark a double-dip recession and lead to growing calls for Scottish independence.

The dire set of predictions from Invesco come after the UK last week said it was walking away from crucial trade talks with the EU, having failed to secure an agreement by its 15 October deadline.

Prime Minister Boris Johnson has warned it is time for the UK to prepare for a no-deal scenario, although crunch negotiations are expected to resume. Addressing MPs in the House of Commons on 19 October, Michael Gove acknowledged that a crash-out exit could lead to “some turbulence”.

Kristina Hooper, chief global market strategist at Invesco, said a no-deal Brexit was the “most likely scenario” it was now forecasting.

“There is certainly a growing probability of a no-deal Brexit, as evidenced by EU leaders stepping up contingency plans for this outcome,”  said Hooper.

“A no-deal Brexit would likely spread chaos through the supply chains that stretch across Britain, the EU and beyond — at a time when the economy remains fragile because of the pandemic.

READ A no-deal Brexit would bring ‘some turbulence’, admits Gove

“Furthermore, the virus is resurgent in both the UK and EU, targeted lockdowns are already in place, and the risk of new national lockdowns has resurfaced. Much economic activity including UK-EU trade is likely to remain well below normal in this environment.”

Hooper added that expected disruption to goods and agricultural trade following a no-deal Brexit would likely lead to further economic damage, as well as increase political tensions between the UK and EU.

“Put all this together, and we believe there could be a greater double-dip recession risk for the UK than for most other major Western economies,”  she said.

Aside from increased political tensions between the UK and counterparts in the EU, Hooper said a no-deal outcome would likely provide fuel to those who support a breakup of the union.

“Political pressures are rising for not only Scottish independence but also the eventual reunification of Ireland,”  said Hooper.

“While [Johnson] has indicated that he won’t allow a second Scottish independence referendum, we expect Scottish fervour to abandon the UK to continue to grow, especially if the Nationalists hurtle to victory in the Scottish Parliamentary elections in May.”

Despite the gloomy outlook, Hooper said there is a “very small chance” that a trade deal could be agreed, similar to the one Canada has struck with the EU.

“This would come as a great relief, and we believe it would allow sterling to gain some of the ground lost since the referendum,”  she said.

“There is also a moderate possibility (likelier than a comprehensive Brexit deal) that the EU and UK could forge a ‘skinny’ Free Trade Agreement as well as a number of sector-specific deals, including for the UK’s large financial and professional services sectors. This outcome could help avert severe disruption but would not resolve key challenges.”

To contact the author of this story with feedback or news, email David Ricketts

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