Brexit Dashboard : Brexit UK risk premium is doomed to rise Brexit Dashboard : Brexit UK risk premium is doomed to rise Brexit Dashboard : Brexit UK risk premium is doomed to rise

Brexit Dashboard : Brexit UK risk premium is doomed to rise

Christopher Dembik

Head of Macroeconomic Research

Summary:  Brexit is back in the spotlight today with an urgent meeting of the EU-UK Joint Committee to address EU's concerns over London's plan to breach the agreement governing its withdrawal from the bloc. Over the past few months, Brexit has been considered by many investors as a secondary issue, but this is not the case anymore. This dashboard features a number of indicators that will give you some clues about the direction of the UK economy and the UK financial markets and will help you formulating your investment decisions.

What is Brexit? It is similar to blowing up your house while trying to swat a fly. We expect that Brexit will be in the spotlight in coming weeks and will replace COVID as main concern of UK businesses as acrimony between the UK and the EU is increasing fast. The risk of a no deal Brexit is being priced in higher by the market, but it is bright clear there is room for higher volatility and more downside on UK assets as we are approaching the soft deadline of October 15 set by Prime Minister Boris Johnson to reach an agreement. Given uncertainty is jumping regarding the negotiations and post-Brexit UK (especially over taxation and the status of the country in international markets), we would not be surprised to see a reversal in economic activity in Q4 on the back of a new contraction in business investment and sluggish aggregate demand (Fig. 1). The short- and medium-term outlook for UK assets is becoming gloomier every day. The Brexit equity risk premium for companies most exposed to the UK market has risen again recently. While some investors may consider it is the best moment to buy discounted stocks, we think that too many risks are still present and a wiser way of investing consists in reducing exposure to UK assets in these uncertain circumstances. The GBP has lost ground versus its main counterparts over the past days and more bad news in the short term will certainly fuel the bearish momentum. With the EUR/GBP cross pushing past resistance at 0.9135 earlier this week, we expect the upward trend to continue with an upcoming test of the resistances at 0.9285 and 0.9387 (Fig. 2). We believe there are mostly three options on the table for the UK/EUR relationship: (1) a thin deal, which would be the best-case scenario, (2) no deal and (3) no deal in very acrimonious circumstances. As of now, the latest option seems to be favored by the UK government but the situation can evolve quite fast. This is like a roller coaster. In case of a no deal, the Bank of England will widen the scope of its support to the economy, first resorting to QE and temporary financing of the government via the “Ways and Means Facility”. This backdoor debt monetisation should limit the negative financial and economic consequences of a no deal Brexit and, in case of a thin deal, it could serve to finance the new interventionist policy that is winning in London (Fig. 3). The next important step for the UK/EUR relationship will take place on September 25 with a special EU Council over Brexit.

(Fig. 1) Macro : No deal Brexit noise in the context of post-COVID recession put at risk the slow recovery that started once the lockdown has been lifted. Increasing uncertainty about the future is likely to reinforce pre-existing trends towards higher savings and lead to a new contraction in business investment that could result in a reversal in economic activity in Q4 this year.

(Fig. 2) Markets : As Brexit uncertainty increases, the Brexit risk premium is doomed to increase in the coming weeks, with lower stock market performance for companies most exposed to the UK market. So far, the forex market has been rather quiet but we think there is room for further bearish GBP bets in the short- and medium-term.

(Fig. 3) Monetary Policy : The recent jump in inflation is unlikely to prevent the Bank of England from easing further monetary policy in case of no deal Brexit. We favor two scenarios: (1) more QE or (2) more QE and negative interest rates. However, this latter option might still cause intense debate within the MPC due to the well-documented impact of negative rates on bank profitability and risk-taking.

Latest Market Insights

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region


Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.