The pound slides as Brussels, EU member states and London brace for hard Brexit

British and European flags in front the European Commission headquarters in Brussels, Belgium, 08 December 2017. EPA-EFE/OLIVIER HOSLET

The pound slides as Brussels, EU member states and London brace for hard Brexit


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The pound continues to slide as markets see the possibility of a hard Brexit is nearing closer; the warnings are coming from the European Commission, the International Monetary Fund (IMF) and the British government.

 On Thursday, the European Commission issued a warning to member states to prepare for “all outcomes” as regards to Brexit, as a hard Brexit will hurt supply logistics, transport and trade. A number of sectors have started moving personnel, including insurance and banking.

The IMF warned on Wednesday of a rising possibility of a crush out; this warning was echoed by Brexit Secretary Dominic Raab, who warned the EU to brace for a no-deal Brexit. In the words of the Irish Prime Minister, Leo Varadkar, the main political issue is that the UK government does not have a parliamentary or even cabinet majority for any solution.

The next landmark date on the calendar is the EU Council in October, six months before the UK leaves the EU in March 2019.

The IMF is warning this could cost EU economies a collective 1,5% in growth by 2030 if the UK falls back on World Trade Organisation trade rules. The hit would be hardest for Ireland, followed by the Netherlands, Denmark, Belgium, Malta, Cyprus, and Luxembourg.

For the UK, there seems to be a more short-term effect as the pound is eroding purchasing power.

In the short run, the UK could expect growth decelerating by 2% of its GDP.

The prospect of hard Brexit is already causing damage. Currently, inflation in the UK remains subdued despite expectations and a surge in energy prices. The prospect of an interest hike in July is now called into question. Core inflation remains below 2%, even if the UK recorded record low unemployment on Wednesday.

IMF projections have not been accurate in the past, as the economy avoided recession in the immediate aftermath of the 2016 EU membership referendum.

Customs are preparing for thousands of trucks being held at the border daily.

The Netherlands and France are hiring added Customs personnel to respond to a potential crisis. The UK government is considering converting a stretch of the M20 Motorway in Kent into a vast parking; it is also hiring personnel and equipment. Up to 5,000 additional customs officers could be needed.

Industry can only stockpile parts of planes and cars to prepare for the worst-case scenario, before production units shift altogether. Even the UK’s National Health Service is apparently stockpiling medical supplies.

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