Recently, it has led central bankers across the world to exercise particular caution. The proponents of protectionism now have to be persuaded to do likewise.
It is obviously important to set out the working assumptions underpinning our baseline scenario. Three exogenous risk factors need examining. The first and most imminent one is Brexit negotiations. In view of the current state of discussions and the political balance of power, the default option is a “no-deal Brexit”. This is the unusual aspect of this negotiation: failure would not result in a status quo but in a paradigm shift in the terms of trade. However, this option has such a high economic and financial cost, and ultimately a political one too for all those who take the blame, that no-one stands to benefit. There is no majority in favour of it in the UK Parliament or the UK government. Approximately one month before the fateful date, and despite the fog hanging over it, we nonetheless think Europe will avert a “no-deal Brexit”, if only at the last moment.