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Hard Brexit now more likely

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Shilen Shah, Bond Strategist at Investec Wealth & Investment, comments on the news that the UK is initiate Article 50 by the end of Q1 2017… 

The confirmation by the PM that the UK would initiate Article 50 by the end of Q1 2017 does highlight the fact that the government is committed to leaving the EU. However, for market participants the key soundbite was that regaining control over EU immigration into the UK would be the priority ahead of membership of the single market. Following Sunday’s announcement, Sterling has weakened this morning with the GBPUSD exchange falling below 1.29 as a hard Brexit becomes more likely. Long term, if the UK does follow through with a hard Brexit, Sterling has the potential to come under further pressure given the probable stalling of Foreign Direct Investment (FDI).
 
The weak Pound may provide some support to the export orientated FTSE 100. Gilt market issuance is likely to increase given the likely weaker UK GDP profile following a hard Brexit, the Bank of England’s monetary easing however should keep a lid on Gilt yields rising significantly.

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