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London Markets: Here’s what a ‘shock no-deal’ Brexit could do to the pound

London stocks gave up gains and turned flat on Friday, as investors turned their attention toward the continuing Brexit talks. One analyst lays out what different Brexit scenarios would mean for the pound. Read More...

Brexit talks could stretch into the weekend and, for U.K. investors, that was enough reason to head to the sidelines on Friday.

The FTSE 100 UKX, +0.05% was flat, giving up an earlier boost that came from a weak pound GBPUSD, -0.48%, which was off 0.6% to $1.3502 over concerns that negotiators would struggle to reach a post-Brexit trade deal by the Dec. 31 deadline.

The European Union’s chief negotiator, Michel Barnier, reportedly told European lawmakers on Friday that there are “just a few hours left” for a deal to be struck.

Both sides have been casting doubt, with European Commission President Ursula von der Leyen citing worries about one key sticking point — fishing rights — and U.K. Prime Minister Boris Johnson has warned the population to prepare for a possible ‘no-deal’ outcome.

“Ultimately, a deal is in the favor of both sides and I still think that they will make a last-minute compromise,” said Fawad Razaqzada, market analyst at Think Markets, in a note to clients.

“If a deal is reached, hopefully this weekend, the pound could surge past the 1.35 handle, before potentially heading toward 1.40s. However, as the markets have — since March — been led to believe that a deal was going to be reached eventually, the greater risk is if the U.K. departs without a deal,” he said.

That outcome would prove a “shock” to markets and could send the pound down to $1.20, he said. His chart lays out the various scenarios for the pound, depending on how talks go.

Scenarios for the pound


Those Brexit pressures come as data showed U.K. retail sales tumbled in November as fresh COVID-19 restrictions kicked in. Tougher rules will be imposed from Saturday for millions in the U.K., and that comes amid the crucial Christmas holiday season.

Retailers were under pressure on Friday, with shares of Next NXT, -2.05% and Kingfisher KGF, -2.32% both down over 2%, and B&M European Value Retail’s BME, -1.40% shares fell 1.5%. Wm Morrison Supermarkets’ MRW, -1.87% shares fell close to 2%.

“From a U.K. perspective, today’s figure highlights the potential suffering that the high street will endure as the virus continues to push physical sales online,” said Joshua Mahony, senior market analyst at IG, in a note to clients.

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