This is what happens to the British pound in a no-deal

As Brexit draws closer, the United Kingdom (UK) is more likely to leave the European Union (EU) without a deal. That reports Business Insider. But what will happen to the British pound and the stock markets if there is a 'no-deal Brexit'?

What started as a barely imaginable scenario has many British voters now the most likely outcome of the negotiations. Last week the government of British Prime Minister Theresa May released documents stating the consequences of a 'no deal'. These range from shortages of medicines to rising costs for using credit cards.

The government gave no information about what will happen in the financial markets. But that hasn't stopped research firm Pantheon Macroeconomics from developing a model of what will happen in UK markets after March 2019, if no deal is in place.

More trouble for the British pound
First of all, the British pound will inevitably fall. Since the referendum in 2016, price movements have been parallel to the developments surrounding Brexit. Any news pointing to a softer Brexit will see the pound rise and any news suggesting otherwise the currency will fall.

Without a deal, the British pound will fall by more than 10% from its current level, Pantheon chief economist Samuel Tombs expects. The coin will trade at $0,98 (and $1,15) at the end of March. Other analysts are in line with the prognosis of Tombs† For example, Neil Jones of Mizuho Bank told Bloomberg that the pound will fall sharply on a no-deal deal and will hit its lowest level since the 2016 Brexit referendum.

A rising stock market
While the British pound will fall, the FTSE 100 stock index (which has an inverse relationship with the currency) is likely to reach new all-time highs. A weak pound usually means a strong UK stock market. At least, when it comes to the large multinationals, which are included in the FTSE 100. This is because it relies heavily on companies that do not really earn their money in Great Britain.

The FTSE 100 includes oil companies and pharmaceutical giants and about 66% of all turnover of the companies in the index comes from abroad. For British multinationals, a fall in the pound means that foreign sales and profits, converted into pounds, will increase in value. Partly because of this, the FTSE 100 record after record since the vote.

Pantheon predicts that the FTSE 100 will cross the 8.000 mark if there is a no-deal. That would be an increase of 5,5% compared to the closing position on Friday, August 24.

Read more on Business Insider:
- Theresa May wants to unilaterally open British borders in no-deal Brexit
- Brits want final word on Brexit deal
- This is what bitcoin and emerging markets have in common

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