Brexit is still a black hole

The past week saw a major breakthrough in world science, with the first picture of a black hole in space.

We now have a clear picture of what a black hole looks like, even though it is 53m lightyears away.

By contrast, we still have no idea what Brexit will look like, even though it will come back into orbit in six months or sooner.

It is important to note the new Brexit deadline of the end of October is not a fixed date. The UK could leave at any time before then. However, we would not be that confident that the UK parliament will be able to ratify the withdrawal agreement in the next six months, paving the way for Brexit, or indeed, agree on an alternative way forward.

Given the ongoing delays, Brexit is now in danger of disappearing into its own black hole, never to be seen again.

There are only so many times the EU will be prepared to grant the UK extensions to Article 50 before forcing it to decide between remaining in the EU or leaving, with or without a deal.

Indeed, the UK parliament could decide later this year that, if it still cannot resolve the Brexit impasse, then it has no alternative but to put the issue back to the people in a new referendum.

Remaining in the EU is likely to be an option in any such referendum, together with at least one option on leaving the EU.

Overall then, ongoing Brexit delays, amid a continuing political logjam in Westminster, increase the prospects of the UK remaining in the EU.

Sterling has taken the chaotic events of the past month in its stride, with the EUR-GBP rate largely confined to a narrow 85p-87p range since mid-February.

It could continue to mark time in the next couple of months, amid ongoing efforts to get the withdrawal agreement.

The upcoming elections in the UK do present some event risk for the currency. We only see sterling making gains when remaining in the EU becomes a growing probability, most likely through a new referendum.

On the other hand, the currency could start to edge lower as the new Brexit deadline approaches. Even if the deal is ratified and the UK departs the EU, there are still likely to be choppy waters ahead for sterling as difficult talks will follow on the future relationship between the UK and EU.

Meanwhile, a hard Brexit could still arise. The currency could fall by 10% to 15% in such circumstances.

Oliver Mangan is chief economist at AIB

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