UK Prime Minister, Boris Johnson’s recent announcement of suspension of British Parliament weeks before Brexit has shocked the lawmakers, investors and European powers. What gives legitimacy to such an unpredictable move is Queen’s approval.
The news brought the pound down by 1.1% against the dollar. It also turned the investors blue and brought another slump in the trading on Thursday. The market remains under the $1.22 mark. Johnson’s move is anticipated to cause more damage to the market and economy with all the more less time with UK lawmakers to block a clumsy no-deal withdrawal from the European Union.
The bad part is that it’s just the beginning and worst is yet to come. Analyst predicts that the pound would drop further as the time to exit the bloc grows nearer. Investors fear the no-deal scenario, chances of which are growing stronger with each passing day.
ING’s James Smith and Petr Krpata said, “It goes without saying … that the next few weeks are heading into uncharted territory. For the pound, all of this means further weakness to come.”
Morgan Stanley forecasted the increasing uncertainty would pull sterling down to between $1.00 and $1.10 if Britain leaves the European Union without a deal. It was at around $1.50 before the 2016 Brexit vote.
Johnson, who has been one of the key propagators of ‘Leave EU’ campaign since the 2016 referendum, made it clear at various forums that he would divorce the Union, taking the UK out of the block, on October 31 with or without a deal. He justifies his move in the name of protecting trade.
The UK economy is already in a bad shape with the manufacturing sector down, consumer demand down and even trading market. According to the analyst, the nation would sink in recession, especially in no-deal scenario. The second-quarter reports resonate the same as the economy shrunk for the first time in the last seven years.