Orderly Brexit very much in the cards: Goldman Sachs

In a research note to clients, Goldman Sachs has forecast a positive end to the Brexit ordeal. Wishful thinking? History will tell. The months to watch will be October and December.

With less than 8 months to go before Britain leaves the EU, little clarity has emerged as to what will be Britain’s economic scene post Brexit. British Prime Minister Theressa May, who continues to fight a rebellion within her own party, is yet to strike a deal with the European Union.

However, Goldman Sachs sees May clinching a Brexit deal with Britain getting access to the bloc’s single markets; it also sees her getting the legislation for such a deal through the British parliament. On a cautionary note though, Goldman Sachs has stated there is every possibility of a disorderly exit and the launch of national elections.

Under a timetable, Brussels and London should optimally strike a deal sometime in October so as to give both sides sufficient time to ratify it by March 31, 2019.

“Our own base case is for an orderly withdrawal, although the tail risks have admittedly increased,” said Goldman Sachs in a research notes to clients. “We see the UK and EU settling on a free trade deal covering goods but excluding most services.”

Goldman sees May’s government passing a Brexit deal through the British parliament in December 2018.

“While there may be no clear majority in parliament for any specific Brexit proposal, there is a majority to avoid the no deal outcome,” said Goldman.

The bank also sees the pound rising to $1.36 in a year with the euro at 0.92 pence. Currently, sterling trades at $1.27, and at 89.9 pence per euro.

While both, supporters and opponents of Brexit agree that the divorce is Britain’s most significant geopolitical moment since World War Two, they however foresee vastly different future for the UK’s $2.9 trillion economy and that of the European Union, the world’s biggest trading bloc.

While supporters of Brexit admit to short terms pains for the economy, they foresee long term economic growth. Opponents however say, Brexit is a giant mistake which will cost the UK hundreds of billions of dollars in lost growth, diminish its standing in the world, and delay much needed reforms.

“Although UK political dynamics have raised the likelihood of a no-deal scenario, we continue to believe it is relatively low,” said Goldman.

For companies across industries and sectors, Brexit has caused a deep concern over Britain’s prospects once it leaves the bloc without a deal, which amounts to cutting off its arteries of commerce and trade, the country’s lifeline.

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