Barclays economists predict orderly Brexit and boost to UK stock markets

An orderly Brexit is on the cards and could ultimately make UK stocks “more investable” to global investors, Barclays analysts have predicted.

The bank's European equity strategy division has predicted a Brexit deal will be agreed by the end of the year accompanied by a rebound in the pound.

But it said the relative performance of the internationally-exposed FTSE 100 would not gain much given its inverse correlation to the pound.

Emmanuel Cau, Head of European Equity Strategy, said: “The pound and UK domestic equity exposure have rolled over in tandem over the last few months, and we see a potential for a rally as shorts are being covered.

“A soft and orderly Brexit could contribute to making both UK and European equities more 'investable' to global investors, as both regions are consensus underweight.”

An “internal rotation” would occur within the UK equity market away from exporters and into domestic plays, the bank's analysts added.

They said the despite the “noise” regarding an apparent lack of progress, Barclays' base case remained that an agreement would be completed later this month or in December.

Its analysts said housebuilders, financial service companies and retailers were in line to benefit the most from a smooth Brexit.

Domestic-exposed stocks such as Lloyds Banking Group, Berkeley, Sainsbury, Rightmove and RBS were all set to benefit from the predicted orderly Brexit it said.

Barclays downplayed the likelihood of a no deal but said economic disruption would be avoided by an implementation period in the event of one.

Its no deal scenario still expected “some pain” with inflation jumping 3.5 per cent, growth falling close to zero and unemployment rising to six per cent.

But they maintained a “crash out” scenario was unlikely. “The avoidance of a ‘crash-out’ scenario is likely to come as a relief to investors,” they said.

“More generally, we believe that the broader pan-European equity market would benefit from a deal, even though political uncertainty remains elsewhere, particularly in Italy.