No-deal Brexit risk low but rising, says bank experts

The risk Britain will crash out of the EU without an agreement is low but rising, according to banks and asset managers who also see a growing likelihood of Brexit being delayed. With less than two months until Britain is due by law to leave the EU, lawmakers voted on Jan. 29 to demand Prime Minister Theresa May seek changes to Britain's exit treaty, which the EU says cannot be renegotiated.

They also voted to express opposition to a no-deal exit from the EU but rejected a proposal that would delay Brexit if necessary to avert crashing out without a deal. Some analysts saw these events as raising risks of a no-deal Brexit, though they still assigned a low probability to this outcome. However, belief has grown that the government will have to extend the March 29 deadline for its EU exit. Sterling was trading around $1.30 on Tuesday, up 1.8 per cent this year but off 2-1/2-month highs hit in the run-up to the Jan 29 vote.

Views from a selection of investment banks and asset managers:

AMUNDI ASSET MANAGEMENT

Views no-deal probability at roughly 20 per cent but estimates a 50 per cent chance an agreement is ratified by March 29. It also sees a roughly 30 per cent probability of Brexit being postponed by several months, citing the likelihood of a new referendum or new elections or even a withdrawal of Article 50 by Britain.

COLOMBIA THREADNEEDLE INVESTMENTS

Reckons there is a 60 per cent chance of an orderly exit, with the remaining 40 per cent split between an Article 50 extension and a no-deal scenario.

GOLDMAN SACHS

Raised its estimated probability of no-deal Brexit to 15 per cent from 10 per cent after the parliament vote. The bank also cut the probability of Brexit not happening at all to 35 per cent from 40 per cent while leaving chances of a delayed Brexit at 50 per cent.

DEUTSCHE BANK

Raised its estimate of the probability of a no-deal Brexit to 15 per cent from 5 per cent and recommended taking profit on a long sterling position. However, the bank also raised to 50 per cent its prediction of the chance of last-minute ratification of May's deal, versus its prior view of 30 per cent. It cut the probability of a second referendum to 5 per cent from 15 per cent.

BNP PARIBAS

Kept unchanged its view of a 20 per cent chance of a no-deal Brexit and a 35 per cent chance of a second Brexit referendum. Advised staying long sterling, noting that parliament had merely "kicked the can down the road". It sees a delay to the March 29 deadline as "inevitable".

STANDARD CHARTERED

Maintains its view of a 20 per cent chance of no-deal Brexit but sees rising chances that Brexit will be delayed.

BERENBERG

Reckons risk of a hard Brexit "by accident" has risen to 30 per cent from 20 per cent. The bank also now sees a 20 per cent chance of no Brexit, down from around 25 per cent earlier. It said that in any outcome involving a deal, an extension of the deadline could be necessary.

ING BANK

Sees the probability at 20 per cent, same as previously, noting lawmakers' clear appetite for a deal.

MUFG

Assigns 10-15 per cent chance of a no-deal Brexit and has not changed that estimate. Its view is that the parliament vote was a setback rather than the endgame, with lawmakers likely to agree on a deal. The bank reckons however that the deadline for leaving will have to be extended.

NORDEA

Says that following the parliament vote, the likelihood of no-deal Brexit would be 25-30 per cent compared to 20 per cent earlier. Sees a delay to the deadline as "a certainty".

OANDA

Sees no-deal risk at 10 per cent at most and has not changed that probability, predicting lawmakers will opt to approve a deal rather than risk the damage caused by a disorderly Brexit.

(With inputs from agencies.)