While the coronavirus pandemic and the economic impact of measures to halt the spread of the virus have dominated the attention of markets and money management executives, Brexit is creeping back onto the agenda.
The U.K.'s departure from the European Union — which officially took place Jan. 31, but is subject to a transition period until Dec. 31 — is back on investors' minds. On June 12, the U.K. government formally notified the EU that it would not be requesting an extension to the existing transition period. Sources had viewed the potential for an extension application as unlikely, so the government's notification will not have come as a surprise.
Sources said managers have largely come to terms with the fact that a no-deal Brexit will mean losing their ability to access the EU market under so-called passporting, with a temporary regime in place while equivalence and other rules are thrashed out. But they are still facing the risk of a no-deal Brexit, which executives fear would further exacerbate the coronavirus-induced damage to markets and the pound sterling.
"The current Brexit situation adds to the high uncertainty around the impact of the coronavirus disease, both for the U.K. and for the EU," said Nichola James, managing director, lead analyst on the U.K. and co-head of sovereign ratings at DBRS Ratings GmbH — known as DBRS Morningstar — in Frankfurt. "Therefore, it is important that both sides reach agreement to avoid the risk of a stalled recovery, especially in the U.K."