The market finally seems to be waking up to the potential for No Deal Brexit, despite the fact that it has been the legal default for over two years now and consecutive prime ministers have maintained that they would prefer to leave without a deal than with a bad deal. The difference is that, this time, people believe Boris Johnson just might be crazy enough to carry out the threat.

The Bank of England corrected its panic cut post-referendum when they raised rates in 2017 and then took interest rates to the highest since the financial crisis in mid-2018. With this buffer, as well as a seemingly synchronised dovish shift across the major economies, the market is already pricing over 50% likelihood of a reduction in rates later this year.

There is not likely to be any change from the MPC this week but any suggestion that a cut has been considered would cement the expectation for action in the coming months and likely undermine the pound further.


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