UK Brexit turmoil could spook Gulf investors

Investment experts warn of a 'train crash' effect if Britain is forced into no deal Brexit
UK Brexit turmoil could spook Gulf investors
UK Prime Minister Theresa May.
By Alicia Buller
Wed 16 Jan 2019 08:18 PM

As UK Prime Minister Theresa May reels from a crushing rejection of her Brexit plan, GCC investment experts are increasingly concerned by Britain’s lack of a clear economic path and toxic political wrangling.

The beleaguered UK PM faces a critical ‘no confidence’ motion tonight from opposition leader Jeremy Corbyn which, if defeated, could force a delay to the two-year Brexit process that is set for March 29.

Of the many options available to the UK government, experts say that enacting a ‘no deal Brexit’ or the calling of a general election could be catastrophic for investment sentiment into Britain.

Jeremy Parrish, former CEO of Standard Chartered UAE warned that a no deal Brexit could send the Pound (Sterling) diving towards ‘parity’ with the Euro and possibly even with the US dollar. Parrish told Arabian Business: “In the event of a no deal Brexit, it’s a likely train crash.

"Foreign investment will drop, inflation will rise and supply chains will be badly disrupted. The only possible beneficiary would be UK exporters that don’t rely on imported components and  they, too, may well hit tariffs that didn’t exist as EU members.”

The banking expert, who is the chairman of several Abu Dhabi financial institutions, added: “It is by far from clear whether a general election will follow. Were that to happen and a Labour government is elected then the impact on the pound is likely to be even worse.” 

Wes Schwalje, COO of Dubai-based research and consulting firm Tahseen Consulting, said GCC investor sentiment will become more risk averse and defensive in the coming weeks.

Schwalje told Arabian Business: “Investors will be escaping UK stocks and exposure to the pound to keep their assets close to home or seek shelter in other safe havens until the dust settles.”

Schwalje warned that a no-deal Brexit signals uncertainty and could mean "a collapse of the British government, elections, a second referendum, an unpredictable Pound, and an unclear path forward".

He said: “Conventional wisdom is uncertainty makes firms and individuals less likely to invest, ultimately negatively impacting growth – a trend that has already shown up in declining foreign direct investment.”

According to Thomas Pugh, UK economist at London-based research consultancy Capital Economics, the size of May’s defeat ‘appears to reduce the chances of the UK leaving the EU without a deal on March 29’.

Pugh wrote in a note: “The resounding defeat of May’s Brexit deal is a very bad result for the PM but could prove to be a good result for the near-term outlook for the economy and the pound.”

Pugh said: “The overwhelming consensus against May’s deal means Parliament may now be able to gain greater control of Brexit and work towards a softer Brexit or a second referendum, which would almost certainly require the Article 50 negotiating period to be extended beyond 29 March.

“Tuesday night’s result may therefore raise the chances of a ‘fudge and delay’ scenario. It could actually mark the start of an upturn for the economy and the pound’.”

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