The pound has dropped to its lowest level since 27 December, after the ONS released its latest GDP estimate for the month of November.

ONS numbers

According to the ONS, the UK GDP grew by 0.1% in the three months to November, while it shrank by 0.3% in November 2019. The contraction in November was worse than expected as uncertainty over the general election and the threat of crashing out of the EU without a deal in October weighed on the economy.

As the ONS figures demonstrate, the services and production sectors grew by 0.1% and 1.1%, respectively in the three months to November 2019, but the production sector fell by 0.6%, its second consecutive rolling three-month decline, while manufacturing output fell by 1.7%.

The ONS stated: “Production fell by 1.2% in the month of November 2019, following growth of 0.4% in October. Within production, manufacturing fell by 1.7%. This was largely driven by large falls in the manufacture of transport equipment, food, and chemicals. These industries were also the main drags on growth in April 2019, just after the UK's original planned date to exit the European Union as shown in Figure 5. This may be indicative of some changes in the timing of activity around the second planned departure in October.”

Today’s figures confirm that the UK economy has slowed for two consecutive months, shrinking in April-June, then showing 0.4% growth in July-September, something which has helped to avoid a recession. It has slowed again to 0.2% in August-October, and 0.1% in September-November.

The Office for National Statistics’ head of GDP, Rob Kent-Smith, said that UK growth was at its lowest level since 2012: “Overall, the economy grew slightly in the latest three months, with growth in construction pulled back by weakening services and another lacklustre performance from manufacturing. The UK economy grew slightly more strongly in September and October than was previously estimated, with later data painting a healthier picture. Long term, the economy continues to slow, with growth in the economy compared with the same time last year at its lowest since the spring of 2012.”

UK economy stagnant

The National Institute of Economic and Social Research (NIESR) noted that the “latest data confirm that UK economic growth had petered out at the end of last year. GDP was virtually flat in the 3m to Nov & latest surveys point to further stagnation in Dec. The short-term economic outlook is for more lacklustre growth.”

More importantly, the idea of the Bank of England having to cut interest rates has resurfaced as investment strategists and traders have mentioned.

Bank of England: Interest rate cut?

The latest GDP data has boosted the chances of UK interest rates being cut soon, possibly at the Bank of England’s meeting at the end of January. Matthew Cady, investment strategist at Brooks Macdonald, said: “UK GDP for November has come in at negative -0.3%. This is quite a bit weaker than had been expected. Consensus had been looking for zero growth month on month. Against this, both September and October were revised up by 0.2% and 0.1% points respectively. The weaker GDP print today puts beyond doubt that the next Bank of England meeting at the end of January is going to be a ‘live’ meeting.”

Peter Dixon, economist at Commerzbank, said that the possibility of an interest rate cut has risen to 50%: “With a growing chorus on the MPC apparently open to the prospect of a rate cut, if the data points in that direction, today’s release might well tip the balance of one or two members ahead of the meeting on 30 January, where the market probability assigned to a 25 bps cut has risen to 50% versus 5% at the start of last week.”

However, it is also wise to be positive and consider the GDP numbers as indicative of a specific time period rather than of a future trend, as business confidence can return after Boris Johnson’s election. As chief economist at PwC, John Hawksworth, clarified, today’s data relates to a specific “period of heightened economic and political uncertainty” and that “our latest survey of the financial services sector with the CBI does suggest some boost to optimism since the election.”

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The British pound has dropped against the US dollar after the latest YouGov poll predicted 20 fewer seats for the Conservatives.

As polls open on Thursday morning, it is anyone’s guess what the results of the general election will be as the Conservatives could be winning with a majority or facing the risk of a hung parliament. 

After the release on Tuesday night of the YouGov MRP poll, a detailed constituency-by-constituency poll which predicted a reduced majority for Boris Johnson, the election is expected to be a very close-fought one.

As the Prime Minister himself stated, “This is a very close-fought election, and we need every vote. The only mathematical alternative to a working majority for a Conservative government is the real, real risk of another hung parliament. That’s another five years of confusion, chaos, dither and delay. We cannot go down that route.”

The prospect of a hung parliament could threaten PM Boris Johnson’s ability to deliver Brexit on time and will continue to put more pressure on the GBP.

YouGov poll

The YouGov poll puts the Conservatives on 43% and Labour on 34%, after gaining two points, without ruling out the possibility of a hung parliament. The survey was based on more than 100,000 interviews conducted the last six days. The result shows Johnson’s notional majority being cut from 68 to 28, with his party’s seat count falling to 339 and Labour’s improving to 231.

The YouGov poll used the MRP method (modelling technique called multilevel regression and post-stratification), which bases a result for each constituency by creating a profile for how different demographic groups might vote.

The gains for Labour come from London’s Putney and Chipping Barnet, while the Conservatives’ gains come from Labour in the Midlands and north of England.

Time is limited

According to Reuters, “Sterling’s rally will be limited even if U.K. Prime Minister Boris Johnson wins a parliamentary majority in the general election and finds a way to pass the withdrawal bill by Jan. 31. That’s because the clock is ticking on a trade agreement in a transition period that runs out at the end of 2020. Any longer-term economic and Brexit uncertainty can increase the chance of a Bank of England rate cut next year, which would weigh on the currency and prop up gilts.”

In the case of a Conservative Majority, the pound will continue to be under pressure due to the threat of a no-deal Brexit and the risk of reaching a trade agreement by next year. The prospect a 2020 rate cut is also real, especially with a hard Brexit and the ensuing weak economic conditions, as Market Live strategists predict.

The possibility of a hung parliament will complicate things even further, spread uncertainty and hurt the pound, while making the passing of Johnson’s deal very difficult.

Another outcome, according to Reuters, is Labour forming a government, requesting a Brexit extension and holding a second referendum, which is seen as the worst-case scenario, with the pound falling significantly.

With the release of the latest GDP figures showing that the economy has stagnated due to Brexit uncertainty, failing to grow during the August-October period, economists have criticised the ongoing Brexit chaos and the global economic slowdown. So, while the elections have temporarily boosted the pound on hopes of a Conservative majority, the long-term economic prospects appear to be grim for the economy.

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The British Pound rose against the Euro on Monday after BMG and Survation polls confirmed expectations of a Tory win in the general elections on 12 December. Both polls showed that the Conservative Party was leading the polls, with Labour suffering losses.

The Independent’s BMG poll showed the Conservatives gaining points to 41% and Labour losing 1 point to 32%. ITV's Good Morning Britain Survation poll showed the Conservatives gaining 2 points to 45% and Labour losing 2 points to 31%. Leading by 7 points means that the Tories will win with a majority, while a 14-point lead shows a clear-cut win.

With a Tory majority clearly confirmed by the polls, and fears of a hung parliament receding, the pound rose to a 31-month high against the euro, while against the dollar, the pound was a little bit less than last week’s 7-month highs.

The Survation poll was conducted between 5 and 7 December by telephone with 1,012 respondents. The positive news for the pound is also that Labour is losing rather than gaining points, showing that there is a healthy gap between the two parties and that that gap would be impossible to close in the next three days. Richard Pace, options analyst with Thomson Reuters, said that "Polls continue to show the Conservatives on course for a majority government after Thursday's UK election, which would end the Brexit uncertainty and prove the most favourable outcome for GBP." It appears that a Tory majority is almost now certain, but many traders are waiting to see as the high number of undecided voters could affect the election outcome.

Undecided voters

According to Elsa Lignos of Royal Bank of Canada, undecided voters could really change the election outcome. As she said: “There are two main possible outcomes for this week’s election which will shape the UK for possibly decades to come: (1) A Conservative majority government (exit from the EU at end-Jan on terms of Withdrawal Agreement and then still TBD, the free trade agreement that has to be negotiated by the end of the transition period); (2) A hung Parliament that would see a further delay to the UK’s EU exit and potentially a second referendum. Bookies odds show a Tory majority as a near certainty, in line with the steady gap in most (but not all) opinion polls. But there is a historically high number of undecided voters which could affect as many as 80 marginal seats. We will be neutral GBP going into Thursday and look to trade the outcome.”

Final push

The Telegraph reported that Boris Johnson will visit on Monday Leave-supporting constituencies in England and Wales to urge them to reject Jeremy Corbyn’s “great betrayal” of Brexit and Labour politicians “who sneer at your values and ignore your votes.” He is expected to tell voters in Sunderland later on Monday that "The Labour party has let you down," while Parliament has "bent every rule and broken every convention as it has delayed, diluted and denied Brexit.” Johnson’s message will be that a vote for his party is a vote to "get Brexit done and unleash Britain's potential.”

On the other hand, Labour, will turn towards the economy by highlighting their radical programme of nationalising utilities and the Royal Mail, as well as investing in public services, and creating new rules for businesses and homeowners in the first 100 days of a Corbyn administration.

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Prime minister Boris Johnson wants to “get Brexit done,” but with Brexit the unresolved issue of the UK’s future trade relationship with the EU and other countries still remains and is expected to be one of the big concerns at the end of 2020.

If Brexit does happen, the UK will need to negotiate a free trade deal with the EU so it continues to enjoy tariff-free access to its market after the transition period, and will also need to negotiate and sign new trade deals with countries such as the US.

According to Johnson’s withdrawal agreement, the UK will continue trading with the existing terms until the end of the transition period which is due on 31 December 2020. He has already stated that, if he wins a majority, he will negotiate a Free Trade Agreement (FTA) with the EU which will come to replace the current arrangement at the end of 2020. The deadline for next year is considered among economists and politicians a very challenging one, as the time frame is limited and the subject matter demanding and complicated. As it is usually the case, trade negotiations take years, so it is similarly expected that Johnson’s trade agreement will be a difficult task, impossible to deliver as promised. Of course, it will be possible to extend the transition period, but this should be decided by 1 July.

As a Financial Times article notes, it is difficult to see the EU and the UK reaching a deal in as little as five months, especially when there’s legal and translation issues involved. A draft for an EU-Japan deal took four months and 10 days to prepare, “including ‘legal scrubbing’ and translation into 24 official EU languages — and this is viewed in Brussels as an example of the bloc moving at breakneck speed.”

In the case of Canada’s deal with the EU, this took more than five years to complete and another three before it came into force. For some, the UK-EU trade deal will be even more difficult as the two sides will attempt to establish a new relationship that seeks to replace an older one, while for others, the negotiation will be fast and quick as we are already in sync with EU regulations.

What is an FTA?

An FTA is a multinational trade agreement that creates a free-trade area between different states and determines the tariffs and duties on imports and exports in order to eliminate trade barriers, such as trade taxes or tariffs. While a customs union is more encompassing and requires all parties to have the same external tariffs, a free-trade agreement allows countries to establish whatever tariffs they wish, otherwise adopting a preferential treatment system.

If the EU and the UK are unable to reach a trade agreement within the specified time frame, then the UK will revert to World Trade Organization (WTO) terms – which means British exporters would have to face the same tariffs as other countries as the US or China. But even with a trade agreement, the privileges that are currently enjoyed under the customs union will be lost.  A trade agreement will mean more costs and more bureaucratic control for UK companies, which is why economists are warning that Brexit will damage the UK economy.

The UK is also in the process of rolling over the EU’s existing free trade deals with other countries in order to avoid losing tariff-free access to the EU after Brexit. The UK has signed 19 continuity deals with 49 countries. The UK’s biggest trading partners are the US and the UK, with the US being the UK's biggest single trading partner, and the EU accounting for 46% of UK exports. The problem with striking an FTA with the US is the obvious standards in food products, especially when in the US regulations are not as strict as in the EU, with the most obvious examples being genetically modified foods and chlorinated chicken.

At the moment, one of the most important Brexit outcomes is considered to be the resolution of a trade agreement with the EU by the end of next year, as the scenario of leaving without a trade deal will not only result in a political crisis for the government, but also an economic one for the whole of the UK.

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After a Kantar poll showed that Labour was gaining support, with the Conservatives leading by 43 percent and Labour closing the gap at 32 percent, the pound reacted by falling lower.

FXStreet’s Yohay Elam could not have put it better: “Bearded Corbyn is bringing the bears out." While the chances are low, the possibility of Jeremy Corbyn being the next PM has spooked the pound.

Up until now, the pound has reacted positively in accordance with the possibility of Prime Minister Boris Johnson’s Conservative Party winning at the UK general election. With polls mostly showing that the Conservatives’ lead has been growing, analysts have been anticipating a majority of seats for the Conservatives, which will significantly boost the pound. This is based on the belief that Johnson will “get Brexit done” before the deadline of 31 January, which means that an orderly Brexit will come hand in hand with the pound trading higher.

However, after the Labour party released its manifesto last week promising to increase both spending and taxes, support pensioners and nationalise industries, alongside the pledge of a confirmatory referendum on Brexit, support has surged for the main opposition party, something which is now reflected in the polls.

The Kantar poll

Kantar surveyed 1,097 people online between 21-25 of November. According to the poll, which took place after both parties had published their manifestos, support for the Conservatives fell 2 points while Labour gained 5 points.

The Kantar poll was published on Tuesday following Monday's poll by ICM for Reuters which also showed that the Conservative's lead is threatened by Labour, supporting further the possibility of a hung parliament. A hung parliament will be negative for Sterling as it will create uncertainty over Brexit and hurt businesses and financial markets’ sentiment.

Markets are wary

If Labour continues to perform well in the polls and the gap between the two main opposition parties tightens, then the pound might be unable to maintain its steady upward trajectory. Analysts are cautious now as the risks for the pound are increasing due to markets being too confident that a Conservative majority was the most certain outcome. With the campaign entering its last two weeks and undecided voters (most possibly Labour voters) changing current certainties, risks are definitely on the rise over the coming days.

Investors are wary of the latest Labour bounce, but if Conservatives continue to poll well, then things will change again and the market will become more confident over a Conservative majority scenario.

According to CNBC, Opinium’s latest voter intention poll gives the Conservatives a 19-point advantage over Labour, but “this could be too good to be true,” as BMO Capital Markets Head of European FX Strategy Stephen Gallo said. Gallo also stated that the outlook for GBP was binary. He said: “We’d much rather be looking for value in selling the GBP on a 1-3 month basis, on the view that hung parliament odds are ‘underpriced’ by the FX market, and even with a comfortable (Conservative) majority, the remaining U.K.-EU negotiations on an FTA (free trade agreement) will probably raise the odds of a ‘no deal’ exit from the transition phase in 2020.”

Whether the pound continues to retreat due to polls showing a Conservative lead shrinking, it remains to be seen.

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Boris Johnson doesn’t like to give up easily, so his latest promise is that the UK will complete a free trade agreement with the EU by 31 December next year. As he has stated, if he wins the election in December, the UK will be able to strike a free-trade agreement within just 12 months.

Is this possible?

According to the Financial Times, “few trade experts believe this is possible.” The reason being is the difficulty of having an agreement ready in such a short time, especially considering Brexit happening in January, and a transition period lasting until 31 December 2020. If this is the case, the article argues, the UK and EU would need to have agreed on “a comprehensive trade agreement by the end of next year. If they haven't, the UK in effect falls out of the EU with no deal. Most trade experts say a free trade agreement can’t be concluded that quickly.”

For many Brexiters, the UK wants to complete a similar kind of agreement as the Canada plus one, which took seven years for the EU to conclude and which will need the approval of all 27 remaining EU states.

Managing director of Eurasia Group Mujtaba Rahman has confirmed the impossibility of agreeing any trade agreement between the UK and EU. Talking to the FT, he said: “Remember this will be a trade agreement unlike any before. Normally trade agreements are designed to promote economic convergence. This one will be about managing divergence. That’s much more complicated.” 

As the government is not open to extending the transition period beyond the start of 2021, Johnson will have to win the election with a majority, something that will again open the possibility of a no-deal Brexit.

A Canada style free-trade deal

Boris is not looking for a close economic partnership, but rather for a trade agreement similar to the so-called Canada plus agreement, that will define the UK’s future relationship with the EU. Canada’s trade agreement with the EU is considered one of the most ambitious ones and is officially called the Comprehensive Economic and Trade Agreement (CETA). IT was signed in 2016 and was enforced in September. However, it hasn’t been ratified yet by all the countries, a step that could take several years.

The specific Canada trade deal has helped increase exports to Canada with Canada’s Minister of International Trade Diversification Jim Carr stating that: "At the Port of Montreal alone, we have seen 20% more traffic in goods headed across the Atlantic. This enormous step in growth for Canada and the EU has been the reason why new shipping lanes have been added to accommodate container traffic."

According to the deal, 98% of all tariffs on goods traded between Canada and the EU are duty free, something however, that, does not mean no border controls. Additionally, when it comes to the financial services, CETA does not offer anything that is not already covered by World Trade Organization rules. There is no"passporting" rights that will allow Canadian financial companies to sell their services in EU member states. Finally, there will still be tariffs on some products and quotas on certain agricultural products.

Not Ideal for UK and EU exporters

A Canada plus-type agreement might enable the UK to leave the EU customs union and decide on its own tariff rates, but it won’t necessarily solve all the issues faced by UK and EU exporters. There will be costs and additional bureaucratic documentation that will be too complicated or costly for companies.

EU: Any future trade agreement will be “difficult”

The European Union's Brexit negotiator Michel Barnier talking on Tuesday at the Web Summit, in Lisbon, said that negotiations on a future trading relationship with Britain would be "difficult and demanding," as the EU "will not tolerate unfair competitive advantage." "The UK should not think that zero tariffs, zero quotas will be enough," and that time would be "extremely short" for negotiations. He added that the UK still faced the threat of a no-deal Brexit: “Even when the [Brexit] deal is ratified it will not be the end of the story ... We have to build a new partnership with the UK after they withdraw."

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With the EU asking for more concessions from the UK, the pound fell against both the dollar and the euro. Despite optimism that Britain and the European Union will be able to come to an agreement and strike a Brexit deal this week, the pound was hurt by the realisation that there’s still a long way to go.

On Monday, the PM's official spokesman told journalists that "Talks remain constructive, but there is a lot of work still to do." Similar were also the comments by Ireland's Tanaiste (deputy prime minister) Simon Coveney: "A deal is possible, and it's possible this month," Mr Coveney said. "It may even be possible this week. But we're not there yet."

Last week, Sterling rose higher on the possibility of the UK and EU finding common ground. However, the outlook is now more measured and expectations on Brexit negotiations are constrained, something that has helped to pull Sterling back down. With EU leaders fearing that Johnson will not manage to pass Brexit in Parliament, uncertainty will remain.

Getting Brexit done

In the meantime, in Brussels, both sides are trying to reach a Brexit deal before Thursday's summit of European leaders, despite the "big gaps" as senior EU official Michel Barnier called the existing differences between the UK government and EU. 

On Thursday (17 October), the two-day summit of EU leaders will begin in Brussels and is the last meeting scheduled before the Brexit deadline. On Saturday (19 October), there will be a special sitting of Parliament. In case there’s no Brexit deal approved by MPs and no agreement about the UK leaving with no-deal, Saturday will also be the day that the PM will have to ask the EU for a delay to Brexit under the Benn Act.

Both sides are willing to agree a deal before the EU summit on Thursday and Friday, and, hopefully, that will enable the government to introduce a withdrawal agreement bill to be voted in a special Parliamentary session next Saturday. However, many remain pessimistic, including EU officials, with one senior figure describing the possibility of reaching a deal at the summit "ambitious." According to Tony Connelly, Europe Editor for Irish state broadcaster RTÉ, "Following two days of intensive talks the two sides are still far apart on customs. The EU side continues to have grave concerns about the UK proposals to keep NI in the UK customs territory, with Theresa May's old Customs Partnership idea being recycled and adapted for NI.”

Before the European Council summit starting on Thursday, markets will be waiting to see the developments before commenting on the pound’s future. Markets remain hopeful as long as there are ongoing talks. However, both sides would need to come to an agreement on the issue of the Irish backstop, ideally avoiding a hard border with Ireland. 

According to The Times, EU negotiators have requested more concessions from the UK, with the EU’s Chief Brexit negotiator Michel Barnier, describing Britain’s proposals unacceptable. Barnier told David Frost, Britain’s chief negotiator, that “Mr Johnson would have to give further ground on a customs agreement for Northern Ireland,” if a deal were to be struck.

Boris Johnson needs more backing for Brexit deal

In order to pass a new Brexit deal through parliament Boris Johnson will need support from both Eurosceptics and pro-deal Labour MPs. He will need to win over all the 28 Tory “Spartans”, as well as get help from the DUP or Labour backbenchers.

In a loyal address after the Queens speech on Monday, Lee Rowley, a Conservative MP expressed his position on Brexit and how it was necessary to get it done: “If there is light at the end of the tunnel later this week, and heaven knows I hope there will be, we have a fundamental responsibility in this place to try and resolve this most vexed of problems and allow our despairing country to move on. For the health of our democracy and to restore faith in this most venerable of institutions, in my view we simply must get Brexit done.”

Eurosceptic Steve Baker, was positive of a deal as he said, “Boris has had a dramatic shift towards a free trade agreement that would leave us a self-governing nation … So now really, the devil is in the detail … I am really looking forward to being able to vote for a tolerable deal but, until we get the text, I cannot tell you what we are going to do.”

Others expect to see more in order to vote for a deal, including reassurances on Northern Ireland, workers’ rights and environmental protections.

Whether a deal is possible, it will be obvious within the next few days. The government will have to table a motion by Wednesday if it wants MPs to debate an agreement on the Saturday sitting. If the UK agrees to make concessions to the EU, there is the risk of the deal not passing through the House of Commons with the DUP and Brexit hardliners not supporting it.  

It is within this context, that foreign exchange analysts are not hopeful that a deal could easily pass in the House, something that will lead to another Brexit extension and a snap General Election.

Markets are now cautious as they await proof that the new Brexit deal can pass Parliament before bidding Sterling to rise higher.

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The release of the UK's GDP with a better-than-expected 0.3% growth in July, has raised chances of the UK avoiding a recession and boosted the pound. Data from the Office for National Statistics showed that all sectors of the economy grew in the month – the first of the third quarter, with manufacturing also expanding by 0.3%, and the industrial sector growing by 0.1% during the month. However, the last three months the GDP has remained flat, as Brexit uncertainty has impacted on investment.

This is why, despite Brexit recession fears having eased, the economy remains under pressure. For example, the services sector growth might be an indication that businesses are stockpiling in preparation for Brexit as its outcome continues to be unknown. Plus, as many economists indicate, it is unclear for how long growth will continue.

KPMG report  

As accountancy firm KPMG forecasted, there is a possibility of Britain falling into a recession in 2020 if it leaves the EU without a deal. According to the firm, a no-deal Brexit will negatively affect the UK’s trade and business confidence and lead to the economy shrinking by 1.5% in 2020. The accountancy giant is not the first to warn of the negative effects of Brexit on the economy, as experts have already underlined the grim economic outlook for Britain.

Forecasts by the Bank of England and the Office for Budget Responsibility, have also highlighted the negative economic consequences of a no-deal Brexit and, consequently, of losing access to the EU single market and customs union.

The possible recession will cause a rise in unemployment, a decline in consumer spending and an estimated 6 percent slide in house prices, the KPMG report added.

Yael Selfin, the  KPMG’s chief economist noted that in the case of a recession resulting from a no-deal Brexit, the decline in the pound’s exchange rate will “push up inflation to above the Bank of England’s 2 per cent target, potentially forcing the central bank to lower its key interest rate to near zero.”  With the central bank’s key rate currently standing at 0.75 per cent, interest rate cuts will possibly be no higher than 1 percentage point.

The report also said: “[The new government’s] resolve to leave the EU by 31 October has become increasingly clear . . . and the proximity of the date make the outlook for the next two years rather bipolar.” KPMG added that the pound’s 10 percent expected decline in value, will hurt even exporters as issues over borders will eliminate any positive effect the weaker currency might have. Selfin said: “The most damaging impacts could come from potential shortages of imported foodstuffs as well as medicines in the immediate term, negatively impacting households’ sentiment.”

Selfin could not be clearer when discussing the damaging effects of a no-deal on the economy: “With the Brexit debate poised on a knife-edge, the UK economy is now at a crossroads. It is difficult to think of another time when the UK has been on the verge of two economic out-turns that are so different, but the impact of a no-deal Brexit should not be underestimated. Despite headwinds such as the slowing global economy and limited domestic capacity, the UK economy now has the potential to strengthen over the next 12 months. But a no-deal Brexit could put paid to this upside, triggering the UK’s first recession for a decade.”

Government and Bank of England will be unable to stop a recession

Indeed, the outlook looks grim as the economy contracted by 0.2 percent between April and June, with investment and growth being limited. 

On Monday (9 September), the Resolution Foundation thinktank in its assessment of the UK’s readiness to respond to the next recession, said that the government and the Bank of England were unprepared and that this was a significant risk that policy makers should take seriously. As the think tank noted: “The UK’s macroeconomic policy framework has not kept pace with significant changes to our economic environment and is therefore at risk of leaving the country underprepared for the next recession. That is not a risk policymakers should take lightly.”

 In its key findings, the think tank stressed that the country was facing the biggest risk of recession since 2007, that those of lower incomes would be the most exposed to the recession and that monetary policy will be unable to provide “anything like the level of support it has previously in recessions, reflecting what appears to be a secular decline in the level of interest rates around the world.”

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Moving to Italy and buying property might be a dream for many, but what happens when Brexit is looming on the horizon and your EU status is suddenly questioned?

Brits can buy a property in Italy, despite being from the EU or not, so Brexit won’t have a big impact on your decision to buy property there. However, as with other European countries where Brits are relocating or buying a property as residents, you will have to register as a resident in Italy, check whether your passport is valid for travelling, exchange your UK driving licence for an Italian one, as well as register for healthcare. So, buying property in Italy means also deciding about your residency as you must register as an Italian resident if you are considering staying there for more than three months. 

Residency

If the UK leaves the EU with a deal, the rights of all UK nationals living or working in Italy legally will be recognised by the Italian government. However, if there is no deal, UK nationals living in Italy will have to get a non-residence permit by 31 December 2020 to protect their rights to work, healthcare and social benefits.

When it comes to buying a property after Brexit, being a non-resident and non-EU national, will mean that you will have to use the house as your holiday home, while only being allowed to stay there a maximum of 180 days per year, but only 90 days at a time. If you buy the property as a resident, then you will have to live there for over half the year and state that the property is your main residence. This will lower the amount of money you have to spend on purchase and local taxes.

Buying a property

Buying a property in Italy is usually performed by a notary who is a qualified lawyer to conduct the transfer of the property between the seller and yourself. The notary will prepare the deeds, check for outstanding charges, and make sure that the property meets required standards. They will also make sure there is a translator present when you sign the legal contracts. The translator might cost you a couple of hundred euros.

As a buyer, you will pay the purchase taxes and the notary’s fees. The notary will be paid approximately 1-2 percent, depending on the price of the property.

Buying property as a resident or non-resident, as well as from a private individual or a company are factors that will affect the kind of taxes you will have to pay for your property. Buying from a private individual will involve paying the cadastral fee which is defined by the property’s size and location. Additionally, if you’re buying as a non-resident, you will have to pay taxes on the cadastral value, as well as smaller taxes. While buying a house as a resident will involve lower taxes and obtaining a residency permit within the next 18 months, only do so if you intend to become a resident, otherwise, you will still have to pay the relevant taxes plus a penalty of 30%.

For a property bought from a company, you will pay a similar cadastral value on the property as buying it from an individual, especially if you’re buying as a non-resident, but buying as a resident the taxes will be much lower. A more favourable situation arises when you buy a winery or a country property which will demand you to pay much lower taxes (just 1 percent on the purchase price in tax). If you are buying an Italian company for commercial use, then you only pay a few fixed fees and no taxes.

Can I buy a property in Italy immediately?

While the time depends on the individual case, you can usually finalise a sale within approximately 10 weeks, as there is paperwork to be completed, registrations to be updated and other related issues that might arise. If you arrange power of attorney, this might take longer, but if you are present yourself and the property is ready to go with all the relevant papers in place, then you are all settled, and the process can be quick.

In case, however, you don’t have the relevant funds in place, but you have fallen in love with a property, then it is possible to sign a purchase agreement in order to reserve it for maximum a month until you can sign the preliminary contract.  Paying a deposit of around €2,000 – €10,000 will protect you against any legal issues, but you will be unable to get it refunded if you no longer wish to buy the property.

Buying a property in Italy with a limited budget is also a possibility, as there are village houses or unrestored old properties that are much cheaper than modern buildings or properties in expensive areas such as Tuscany.

 

Foreign exchange specialists: Universal Partners FX

Whether you are on a limited budget or you can afford a luxury villa, you are still concerned about the value of your funds when you exchange them into foreign currency. In terms of currency volatility, things in Britain haven’t really changed. The prospect of a no-deal Brexit is extremely possible as the latest updates show.

With the Internal Market Bill fiasco and a continued stand-off over fishing rights, a no-deal may be the most likely outcome. Any news that comes out between now and the end of the transition period will certainly affect the euro rates one way or another. For example, if the Internal Market Bill is upheld, this will likely lead to legal action being taken by EU and further jeopardising a deal. Ongoing Covid-19 impacts will also affect the economy and the pound, but eyes will be on the EU as they consider more stimulus packages that will further increase debt and impact the euro.

One thing is for sure, it is hard work keeping track of rates so it is important to protect your funds by getting assistance from a currency specialist such as Universal Partners FX. UPFX can offer you the best possible exchange rates and can even fix exchange rates in advance to avoid market movements costing you money. Contact us today to find out how much money you can save on your international money transfers.

Brexit: Buying Property Abroad as Pound Tumbles

Buying property abroad has become more complex the last few years as Brexit uncertainty and the pound’s volatility continue to negatively impact the UK economy, with fears of a recession increasing.

Brexit update

On Tuesday (3/9), the pound experienced increased volatility, reaching its lowest level  in 34 years, from which it rebounded, as rebel Tory and opposition MPs attempted to block a no-deal Brexit. The prime minister Boris Jonson was eventually defeated. According to the so-called Benn bill, if he is unable to reach an agreement with Brussels in the next few weeks, he will have to delay Britain’s departure from the European Union until 31 January.

Sterling dropped due to fears of a snap general election, reaching its lowest level in more than three decades, with the exception of the October 2016 “flash crash." Ahead of the vote, and after Tory MP Philip Lee’s defection to the Liberal Democrats, it rose slightly.

“For all the uncertainty that lies ahead, markets see a Boris Johnson led no-deal Brexit as the worst-case scenario and thus treat anything that undermines that as pound positive,” said analyst at IG Joshua Mahony.

According to the Independent, a Bloomberg survey last month, showed that a delay was seen as the most positive outcome for the pound. Sterling has tumbled significantly since the EU referendum in June 2016.

Boris Johnson’s defeat by a margin of 328 to 301 on Tuesday, has put the prime minister in a precarious position, and has wounded his rhetoric of no-deal. As a result of his defeat, the prime minister said he would table a bill to trigger a general election, but Labour said it would not back his election motion, which requires a two-thirds majority to pass through the Commons.

On Thursday, the House of Lords voted in favour of getting the Benn bill, that will rule out a no-deal Brexit, through all the stages of parliament by Friday afternoon.

Buying your dream abroad

For many, the decision to buy a home abroad is not significantly affected by Brexit. They have prepared and have done their research and are confident that their decision is final. For them, consulting a leading expert in transferring money abroad has also given them peace of mind. Foreign exchange specialists such as Universal Partners FX have years of experience in international money transfers and can navigate volatile currency markets, saving you money and time. So, considering the current volatility and the weakness of the pound, getting help from UPFX will help you significantly when you make large international transfers to buy property abroad or pay related costs.

Residency rights

Due to the fact that many Brits are already living in countries such as France and Spain, and with more EU countries guaranteeing British expats post-Brexit grace periods, British expats are slightly less worried about Brexit, especially the ones already living there. As many European countries have pledged to offer legal residency rights to British expats in return for the same rights for European nationals residing in the UK, it is hard to see that certain freedoms will completely eclipsed after Brexit. For example, the Italian government has announced that British expats will remain legal residents in the event of no deal, while the Spanish authorities are saying British expats will have the same rights in Spain post-Brexit as long as Spaniards already living in the UK are offered the same residency rights.

France has also made sure to clarify its position on residency by passing a bill in the case of a no-deal Brexit, followed by a government decree. Like other European countries, France will apply these rights as long as the UK does the same for French nationals living in the UK. After Brexit, for example, Britons in France will have six months to apply for a residence card. During the one-year transitional period Brits will continue to have existing rights over residence, work and benefits, while they can enjoy access to healthcare for two years after Brexit. Remain in France and the UK government website provide more details.

So, if you are buying a home in a European country, you need to consider all the complexities of life abroad after Brexit. More importantly, as the pound continues to fluctuate, getting expert help from a foreign exchange specialist such as UPFX, will prove to be extremely beneficial especially when you are transferring your hard-earned money. Get in touch with them today for a quick quote and find out how much you can save on your international currency transfers.