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People and MarketsCommentLeader

No certainty in sight for the UK or sterling

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Borrowers flocked to the sterling bond markets this week, at possibly greater pace than the usual January rush. Some of that seemed to be an attempt to get ahead of a crucial Brexit vote in the UK parliament later this month. But if anyone expects clarity on the UK’s future relationship with Europe after that date, they’re delusional.

Borrowing when you can and not holding back issuance plans is typical, and typically good, advice given to bond issuers. It is especially good advice for UK or sterling borrowers.

The chances of the prime minister getting her Brexit deal through parliament at the scheduled vote in the week beginning January 14 are a smidge over zero; of her postponing the vote a second time are fairly high; of her standing down due to overwhelming pressure from within her party is an outside possibility; a general election is within the realms of sanity; and a second referendum not as pie in the sky as it once seemed.

If you found that last sentence chock full of variables, be warned that it only touched on a few of the possible Brexit outcomes.

That is the kind of uncertainty the UK markets face not just over the coming weeks but in the months ahead, assuming a ‘hard Brexit’ is avoided, of course. That would provide certainty — certain doom.

The way ahead for the UK is murkier than it has been in decades. Borrowers are right to get sterling funding in while they can — but unfortunately for those with needs in the currency or UK issuers generally, the Brexit rollercoaster hasn’t even got to the scary bits yet.