UK Markets closed

Goldman Sachs increases its probability of a no-deal Brexit

Lianna Brinded
Head of Yahoo Finance UK
A flag depicting the British Union Jack design and the EU design is seen outside of the Houses of Parliament in London, Britain, January 14, 2019. Photo: REUTERS/Clodagh Kilcoyne

Goldman Sachs (GS) increased its probability calculation that a no-deal Brexit — also known as a hard Brexit — was likely to happen, after parliament rejected an amendment to take a no-deal Brexit off the table.

Members of Parliament (MP) instead backed prime minister Theresa May to reopen negotiations on Brexit with the European Union and replace the “backstop,” which is intended to prevent a hard border between Ireland and Northern Ireland forming. This is something the EU unequivocally said it would not do. 

US investment bank Goldman has now:

  • Increased its “no-deal” Brexit probability to 15%, from 10%;
  • Reduced its probability of Brexit not happening to 35%, from 40%;
  • Kept its estimated probability of a delayed Brexit deal at 50%.

Analysts at Goldman said in a note that “parliament at large signalled last night that it opposes a ‘no deal’ Brexit, but it is not ready to delay Brexit to rule out ‘no deal’ entirely. But by offering something to everyone, Tuesday’s Brexit amendments offered little additional clarity to anyone.”

A no-deal Brexit is if Britain crashes out of the EU without a deal. That means that all the rules that govern trade, immigration, standards, and many more, between the bloc and Britain cease to apply. It is the worst case scenario for the UK economy.

The UK’s own chancellor Philip Hammond said  “there will be very significant disruption in the short term and a very significant hit to our economy in the medium to long term” in a no-deal Brexit.

Goldman’s CEO David Solomon said last week that the bank will not invest in Britain as much if there is a hard Brexit.