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Updated 23:36 27/02/20

Pound tumbles as no-deal Brexit fears return

By Michael Pinson, News Editor

17 Dec 2019

Just four days after rallying on the back of the general election, the pound has rebounded today, wiping off almost all the gains it had made.

On Friday (20th) MPs will vote on the PM’s withdrawal agreement, completing the first phase of Brexit. News broke last night however that the government are bringing in an amendment which will outlaw any further delays to Brexit.

2020 will see intense negotiations over Britain’s future trade relationship with the EU, with a current deadline for the end of 2020. Many have warned however that this is too short a period for such a large deal to be negotiated in, and that an extension would be needed for a good deal to be ironed out.

Friday’s amendment then means that there would be no such extension, and leaves markets nervous once more over the risk of a no-deal Brexit. This has knocked the pound down by 2 cents in 24 hours, and pushed the gold price back up to pre-election levels of £1,120 per ounce.

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Markets had hoped that the new Conservative majority would grant Boris Johnson the freedom to take a softer approach to the negotiations, and ask for an extension – if needed – to negotiate a better deal.

This could still happen, but instead, it now appears that there are two likely outcomes this time next year:

  • The UK could accept a simple Free Trade Agreement. This would require fewer negotiations between the UK and EU, but is still forecast to reduce GDP and damage the economy.
  • The UK could decide to simply leave the EU without a deal in place, defaulting to basic World Trade Organisation terms – the ‘no-deal’ Brexit that many have warned would significantly weaken the UK economy.

The news comes as a timely reminder that Brexit is far from being done, and that 2020 will still see Brexit uncertainty plague business for the coming months. That uncertainty could continue to boost precious metal prices domestically in the coming year.

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