Risk of a no-deal crash out is too big to be ignored and is reflected in sterling weakness.
Brexit-related noise in UK politics is rising to a new pitch, prompting a review of our existing call that the risk of a 'no-deal-crash-out is negligible. Noise means market volatility with sterling as ever in the front line. Noise is not only inevitable in a political process as fraught as Brexit but also an intrinsic feature of that process. The reason for this is brinkmanship. It is in the nature of such negotiations to go down to the wire. Moreover, the UK government has an interest in brinkmanship to improve its chances of persuading various potential rebel camps that they must choose between the Brexit solution on offer, however distasteful it may be to them, or the worse alternatives of Brexit never happening and/or a government collapse and the risk of Jeremy Corbyn's Labour coming to power.
Periods of heightened volatility for sterling - and UK financial assets - are to be expected between now and next March. This volatility will reflect fears of a crash-out Brexit. Based on the political realities, such episodes should be viewed as opportunities to buy on weakness.
Since publication there have been many moments of political deadlock, drama and fear. There have been 5 sharp sell-offs in sterling vs EUR and on each occasion sterling has bounced and the losses have been quickly recovered. Buying the dips proved to be a profitable strategy.