Interestingly, Kelly points out that the EU exit is not as binary as sometimes portrayed: “The new UK trading relationship with the EU could come in a number of shapes, sizes or consistencies; not just hard or soft”.
One option is full EEA membership, which would likely imply relatively modest changes in the UK’s relationship with the EU, with firms still able to access the single market and the free movement of labour enshrined.
From a shorter-term perspective, the most obvious sign of Brexit uncertainty remains the downward trend in sterling. FXTM research analyst Lukman Otunuga is one who believes the currency could be instore for “serious punishment” this week.
He remarks: “It is becoming clear that the Brexit developments are likely to dictate where sterling trades in the medium to longer term with uncertainty effectively limiting any extreme upside gains. From a technical standpoint, sterling bears may re-enter the scene back below 1.23.”
From a wider European perspective worries about Brexit could, of course, be upstaged by outcomes in the region’s election calendar.
This is the immediate concern for Michael Stanes, investment director at Heartwood Investment Management, though he also acknowledges some relief in that the Article 50 process is finally underway.
“While Brexit dominates UK concerns, French and German politicians will probably be more focused on their own national elections, which will further test anti-establishment sentiment,” he explains.
“We continue to remain cautious on UK assets and expect higher inflation to weigh on real income growth this year.”
