When we calculate the probabilities, we find that by far the most likely result is a “never ending story”. The politicians agree on principles but not the details. In short, they keep kicking the can down the road. Sterling would probably rise, potentially benefiting investors who own domestically focused UK assets and hurting those with foreign investments and the FTSE 100, which tend to do poorly when the pound strengthens. A hard Brexit has the second-highest probability. A no-deal break with the EU would send sterling tumbling as low as $1.20 or less, we believe. Again, holders of overseas assets and the FTSE 100 would probably do best.
Then comes our sandstone option, followed by no Brexit. A sandstone agreement would probably make sterling amble lower, as the greater barriers to cross-border business will hamper the UK’s future prospects. However, a continued trading relationship would mitigate the pound’s fall.