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Brexit or no Brexit: Here’s how the Middle East region could be impacted

Theresa May is till UK Prime Minister after surviving a vote of no confidence by 325 to 306, as rebel Tory MPs and the DUP backed her to stay in No 10, BBC reports.

MPs voted against May’s Brexit plans on Tuesday when it was rejected by 230 votes, the largest margin in British history

Labour leader Jeremy Corbyn failed to attend the vote of no confidence yesterday declaring that any “positive discussions” can only take place if May rules out a no-deal Brexit, i.e, the UK will only leave through a managed process, and not through brute force.

“We estimate the most likely event to be a general election called before the end of next week. The Tories will be judged “guilty” in failing to deliver the British public vote and will be seen as destructive for the UK economy; we still see the UK, together with Germany, as having the biggest risk of recession in 2019,” says Saxo Bank Chief Economist Steen Jakobsen.

 

The below is an analysis by Lukman Otunuga, Research Analyst at FXTM. he argues the impact of a Hard Exit and a No Brexit.

Expert opinion: Does Brexit pose an economic puzzle to the GCC?

Hard Brexit

A hard Brexit poses disastrous consequences for the United Kingdom as heightened levels of uncertainty weigh heavily on growth and British Pound.

While the Middle East may be insulated by the tremors created from Brexit, some industries such as real estate and tourism remain in the firing line.

With most nations in the Middle East pegging their currencies to the Dollar and a fair amount of revenues in the region created from oil, downside shocks triggered by extreme Pound volatility are likely to be mitigated.

Read: Brexit brings Brits to Dubai: Can they find opportunities in the city?

In fact, local investors may end up acquiring an appetite for the Pound if repeated weakness suggests that it could be extremely undervalued.

The GBPUSD almost unchanged with a small overnight rise leaving it at 1.2861 in the wake of today’s opening bell.

However, if a hard Brexit encourages risks to the global economy then the GCC region and market, similar to other markets around the global economy, could be exposed to some potential downside risks.

In the medium to longer term, a hard Brexit has the potential to improve trade relations between the United Kingdom and nations in the Middle East.

If both nations are able to secure favorable trade deals with each other, this may end up encouraging economic growth as essential services from the United Kingdom smoothly make their way to GCC nations.

Read: Brexit fears exist, but London properties attractive to Asia, Middle East

No Brexit and UK stays in the EU

Financial markets are likely to breathe a collective sigh of relief if the UK ends up staying in the European Union.

This welcome development will erase a major element of uncertainty consequently boosting sentiment towards the United Kingdom and the British Pound.

With the UAE being UK’s 12th largest trading partner and considers the UK a highly attractive destination for investment, stability in the UK will be good news for the GCC business environment in terms of trade and investment.

With the cloud of uncertainty created by Brexit poised to become a past theme, the mood across markets is likely to improve which in turn is seen supporting local equity markets in the region.

To read more market analysis from FXTM please visit: FXTM.

“We look to tactically sell GBPUSD towards 1.2880/1.2900 as the market is over-interpreting the likelihood of no Brexit (stop loss 100 pips),” says  Jakobsen.