The global shift away from risky assets and towards safer ones that seems to be underway will either be exacerbated by a no deal Brexit on 31st October or cushioned by a deal or a delay. Although a lot of bad news has already been priced into UK gilt yields and the pound, if a no deal Brexit became a reality we suspect the 10-year yield would drop to a new record low of 0.25% and the pound would fall to $1.15. But if we are right in thinking that the Bank of England would raise interest rates next year if there were a Brexit deal or more delays, there may be more upside to gilts yields and the pound than is widely perceived. A slump in global equity prices will probably mean that the FTSE 100 falls sharply this year either way.
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