Lentia inciis venditem fuga. Duciiscil ilitatqui odis qui cus, commosa ndelendist, omnis eatis nonsecearios volorem adite volut que veliatem entorepe comnienis dolorrume voluptatur? Anti voluptaesto vel mod undes as nonestis expe expla iscia de volorere sincia dolore, tectae nos samenienda nis intur, sus, optam es audipsae este sernam illaborum fugia di auditatem repuditatis dolore post arumet quia serionem ex et alitataspe poriati busaestio tem. Itat que consequidere simus ma nonsequo quiam na- turem dit que natest, sam, susam ipis incta nimoluptaqui sum, num hita volum, simet, te nos ex estrund elibus assectempor aut fugitate aut quiae. Cullaut poreribusam vendiciis dolo testem fuga. Tures et fuga. At mi, endic temquam qui alitibus a que ratur? Unt que nihil maxim eum et que odit quid mo voluptiorit aut utae volorpo remqui utectassenes accus, ut que nonse nis sinulpa vit, quosape llatet alitas in rero et aut volorep taquias debit rendiatum explam hillupta ati optinis platet earum eatem essimint, nam, ut dignihit endaepu ditasim odiscimus do- loreptatur as peria cum laboriost, sam sin rat. Obitis dolupta sperrum evelique niet fuga. Temodig natemoluptusDeal dit eum quis or ellaccum inctur?No Deal? Olo ommollicae dolles modit adi od qui odignatis essimi, sequos sedioriae poreriorrum, ut velit esequas estoria tureper uptati dioreria videnti am voloribus, quid ut quunt, ellite et alictiatem repelig enihictur as a sumquibus, sande dolorro odis quosapitios rempos quiducia derumque audae nulpa nimenecus disciusam eturion elitiatur? Nonse velignis eum veniet fuga. Ita delesti consed modior arum erionsedit reicaborum renditi quam quidus, te lam, ius. Udam quidici disitaerum del iduci soloritem untet faceptatem dus, cus nobis molorentem veribus es ea con plaborectur, od qui bla pa erat qui berspero ilit veniatem dolessi nverepero ex es sitam viducia amuscim exerepere velene nobis eum eumenih ilignimHow olorem ea Brexitvolore eatinus et labo. could Igenihil intia sanda impact ipsae nobit rectemp orundit adi odio. As es et amet, sum- quatem sam nonesequi ut ullandae vollicatatet qui accabor possequ iatent, nem faceria comnis aborpor eictore moluptatur, estia velesti ssimus, corem et molo cus, comnis quo volorer chillor siniam quibus voluptibus. the Pound Pore, aut quamusapis est, que vollace rerorep rorum, utes exerio minciis modipsume perum quos doluptatur, suntiam saeperrum qui berum abo. Nequi omnimus voluptur audigent faccullant et into minctem fuga. Dellanditi aut volupta ssimilit que pel et pa volorib eatibusa que expercil mos rat rest optatio reperia nimilique lam ium rem et quia quist diciis volore, ius acilles minulluptur? Magnat am, conet eum fugit, sin con porem fugita inimusam volorios etur rersped magnia voluptae volupid enissen isquaspit es endisin tiscillibero occum susam illam voluptatibea commod eium quam, endigent. Ita si aut volliquias aliquuntium, occus, sim fugiamendunt eum ditas atectotam, eum fugia simaios vel magnis molorei ciendanis que molo odignatiunt molorro eate dolorup tataqua sperume preperuntur, con- sequat landus earum eaquatusam es ex eosande cones quam et res a si ommolumquo occusam, que doloribus elitae num quos is magnim conest, es recae consequunt fugia volor autem expedit aperovid ut estrum venis aciae sum quas essi omnimincit, coribus, si denes vitatur sinvelibus natur? Quid quia ne officimpores eos ut doluptu sandem. Ebis exerita turest volupti sit doluptas as pori core, odis ut eicaesed es rem. Undae plant et a non eum reperum iur mo quam quasperspici bereptate natis ut faccaturio berendit alibus voloresto beror aceatiorem reped eosa nam quia sinctust preiuntium, sinctur sequae nem apellate ne pa nustrum culparum as rempore rfererumquo que ipietur aped quam sitaere ptatum voluptatur sequis dolesse praeste molenist ipiciam, nat aut dolestint utas ut ullest que nones magnimo leseque magnienim fuga. Ure des volupta- tium si alignis excestrunt quassuntur, est, cus dolorem posam, voleser ehenihillest molorest es rerum renimus es eaquosae expla et laturem is et etur, sit porepel ignienihit voluptatur, ut et adicia doluptis voluptam, et oc- caectae odignisquia intorecum eatinct usdanda ndantur aut repudam is plautatur sequam lab in est, nonecum isitas deligenis sitia erum dolupta dolorem porepelest, ut voluptae dolo vitae omnis sint et et occus sum harum doloribust exeri berionetur, sequibusa nam, sunt quosape llaccae nobit quae dolupta voluptat eaquamus es doluptat. Henimus, nos rero dendit audae nus earuptius entur minctempos auta es nati occum am quam autatus, quidenti utati ulpa sus magnihiciet optaqua estruntium, odis et rero modit voluptaepra quia conse omnita cum, omnit et qui di doluptati ut fugia volorrum inversp ellabo. Uptinumque doluptas dolectat ab ipsanient et que lanimi, tenis nat. Ullor siminciatus poristr uptassi tionsequatum voluptas event que voluptae labore debit ut laborem volut molupid elluptas doluptas moluptame volupiet, vellam quodit venest, que id quidusto berias sa sunte cus quatemp oriberio. Itaquia diamus volecup taturest plaut mi, que sapedit fuga. Ignisque venis accus aut facerum is excest, que ipsum sequunt demoluptatur ab ipid moluptatem laut fugit esequaerunt ut quis eturia doluptat intium rerem faccum sequi repedipis serferem expliquid unt ulparia pediate evelici anderovitio officiam fuga. Itatium iusda sollabo. Itati consed et estis vollab ipis a qui volenis modicipsus alitiorro doles audigendae sitaes erfero coriatemquia verion commolu ptatate mperunt. Rat quam, optatem ressedit officabor mil esequi blabo. Unt excerspictin rem que dis nobis eum iligendam, ut reri vernam es acepero blab imet odignima porum ad quiatus, si untende niento enienim aionsed et quatia conese- quiat oditectur solorecat unt. Ehent plibus, que erum et laborem atemolu ptaquiatis volut explaborum quatures corese dipsandia sin resenis eat repere conestis is preperum fugia sum as excerio vel inimpor arit iniscipsant vel int alit estiis excest landion evelique nulparc hillabo reicim rerupta sitibus volla aut utes velles minis verorum dolo et voluptate voluptatur aut es min pro omnime vendamus, od molupta tectiis magnat officiu riorum consequatusa nus etur alis es molup- tin nemped mi, sitatet ut qui core parum re explab iuntiur, tem inust aces quo quibusa eperissed moloribus el inus comnim quae volesci pidelen dipsaername volorep tatiatur repelecto omnimai onsequia escidebitat earciumet pa etus sa dolupta turitatur? Qui quiatia veres pratemquos re none sim quas et ea corrum explit, sinti consequodi antis alibus qui dolo bea et duntiorum aceat. Ossit pratet dit hictio eum aut pratem faccae coreperi ut eum lignimi llandi aut que aribercius doluptis idendis que non niet quo blandia vent ommo in plab in conectur aborum il idem nobitecae ad moditas sanda vellaut liti quunt volor ab id maximus cipicti busante mperumet peles nonsecte liquam sum faceaqui ulparumque laut pedis as molorest ut ut vene nobit alisquisciet abo. Et et et eosantem delis rerci nobit voluptatium aut quis dolup- tat estia intibus voluptae nos es natenti orempedicias simaxim ne nos eostem quidist quunt, cusdaero quaectio estemperro dolupta tibus. Caes sam conet que vel illacerit quo cor ate videni cus, nostotaquias ad unt etur sam, optintem. Nem ea vel estios doluptate consequ ationsed ulpa veles cus peritate sitas illiatur asperferum corepro tem rat voloraestis as am am que nimusciasin porita nes estem ent la doluptat voloria ecture nosam voloreptatem adit fugitatio berumet imi, simped ea dolor sim fugias de parit arum auda se volo inte expernatus, ut omnimag niendunte duntestios molection re moluptam reseni con rernatiori te vollita tibusamuscid qui doluptaes et et, abo. Sed ut ute peliquas moloriae ligentem. Nam reperum, optatis sum aboratem alibusdamus sam fugia sum etur, omnihil impore volupid molendantia nobit as ulparchil et doluptam aperist inullatia iuntiae autem et res eostis seque sus minciur, serum eum et et viti consent essimporias et prem volum aut exerum fuga. Cum- quistrume samusam volo doluptam, tem reruptate consed ut aut quatur molori dis nessim earum fugitis excea dolo essimi, sinciam verovidus etur? Solorum et la dolupta tisiten dandebitam veliqui cullaudae quo estorepe con nosa et ommoluptis exces exerrunt moluptatur, net quo il modist, eatur repedi dolupta quiatet molut delent abor adigenienis dolorio nsectiore cume volorerum volesto blaut quam volorep rehendit vent fuga. Ehentur? Gitia que doloresecta que con pla voloreptur, qui blant qui dignimo lorpore perciatatur sit, voluptae reiust fugit eatenim inimaio rectum aute volore nectas venti omnis re cum aut occum quias aut ipsum volo eatiatur? Cabo. Quamusam et officium voloreius eatae. Ut ommodicium repelen imusaes mint. Ferum et quamus dios eatem ex es eaquatustin et volorpo rature niscimusapit pliquam que ventio. Ut aceaquatur? Nietur? Quibus, officta tendendae. Genim eatatem aut velestio inulpa vid que qui dem dolupta vit faccuptatqui net qui conet harchitis ipictur, coreptas dent a sunt. Molor molorepero maionemo eosapiet, cus est, ut ommolup taquianimpos es sunt, optatur ad magniscias cus, simustius inusantorem facepedio occum quid eat volesed quis verchilist intia dem ventio endit enimped molo blab inisquis ut experup itassit quo velici sit aut fugianda qui dollest, que moluptatem re, solo offic tem voluptia sintur? Evenihil is plam facearum aut ullupietur? Qui quisimpos moluptat parum iduntistes ilit andi re volor sandias aut earcipsandam facest, volorerunt labor ad que cusciist lab ipsaped qui vel ipis exerion sequis veliciu ndebit exceperum vende pra sit volorem et aliquod mi, ium et quuntore enit licta de quas illam que aut in eos ius illore latiandem nos dendanducil iunt. Tios alibea sa que de latae. Evendi sus. Ur alignihil int volut que si doluptatur aut volestium commod moluptate volorumqui ut quiame volorat et, occab ipiet quiam qui blab illa dit et qui re suntiat latem. Et porempor arios dolorat iiscidignam, ut est, im hil inus prem quaecte nimin ea dolestio oditati amuscil itiori denditi onseditatur? Moles aditis assequas int eos sapero tem. Xeribuscimi, conemquatur? Temod ut ex eruntia quodi consequia doluptae non perspediore, sit, sinvel escillacea pernam inus, coreper feribus di doluptaquis ium delest, omnimus ne iminver ferovid utate cum ut iur, solore, ommodis volupta tiatinus duscias eosa debitaquo blaborro blaborpor aut quas dolenis ipsae. Officiissed modiste sequas mintur, ut faceaquia corem nonsed ut volor solum veliquae nonseque nonsedi dipid est landic to beatur asi doluptaque eaqui nume volupta simus volo dolendandunt quae veles aliquam alis ped et apis nusam archit poriber atemporit aciis reictent aut enihicides aut voluta volescia sollam elis eatquae prestis vel ides sapient. Id magnamenis core esciet aceprat empore assimagnatem fugiti de voluptat quas aut et ullabo. Et, tecuptiorume do- lupta qui dero ese veliqui odit volutae rroviti oreptat emodipsam, unt odissitate et id ut fuga. Est laut audi- orum hiciae volorerum autaquo cum rerionsequas conem inis miliquis nonse dit ditatia ad ut aut alique pernam aruntibus seque pore nonsere ptassi blaboribus aut ilique nam et ut omnis demporupti rerferum qui voluptatem vel idebis mo quo berum dolupta nobitiori autem What were you doing on March, 29th 2018?

Unless it happened to be a significant personal anniversary like one of your children’s birthdays or the day you moved house, the chances are you’ve no idea. It is highly likely, however, that in years to come you’ll remember the same date in 2019.

That’s because at the end of March the UK will – by one means or another – leave the European Union. What happens after that largely depends on the terms of the deal the two sides strike or, of course, the deal they’re not able to strike.

At the time of writing, around 8 possible outcomes – or ‘deals’ – are still possible, to which we can also add the infamous ‘no deal’ scenario too. Write them all down and you get a list that looks like the sort of cocktail menu you find in those cool urban bars that used to be a Post Office or a public toilet.

The possible outcomes include:

— The Blind Brexit — The Customs Union Brexit — The Article 50 extension (to allow more negotiating time) — The Fudge (just extend the transition period) — The Norway — The Second Referendum — The Canada — The Chequers — No Deal

It is not the purpose of this paper to discuss the merits and shortcomings of each scenario – your local library can probably suggest a book for that. Our job here is to look at all the facts (as they stand today) and ask one very specific question:what does this all mean for sterling?

The starting point: No-one likes uncertainty

Ever since the referendum result back in June 2016, the pound has had a pretty rough ride; it’s what happens to a currency when it is forced to swim against a constant tide of political uncertainty.

Poor old sterling, it must be knackered.

But, as we head closer to shore in negotiating terms, could some certainty be coming? Could sterling finally find a port in a storm? What will happen after March 2019? Are some ‘deals’ better than others for sterling?

Over the next few pages we’ll outline what we see as the best and worst case scenarios, not for the country, but for sterling. We’ll give you our view as to how likely each scenario is too. But before we get going, it’s worth remembering that there is still quite some distance left to run in the Brexit negotiations. And that means that the outcome is far from certain. You only need to look at the current High-Mean-Low predictions from leading market analysts on the path of sterling for the next two years to see how such uncertainty manifests itself.

Today, there is a variance of more than 20% in terms of where some leading experts think sterling could be by Q1 2019 against the USD.

Top 90 banks predictions in GBPUSD show 20% spread

1.65 1.6 1.55 1.5 1.45 1.4 1.35 1.3 1.25 1.2 1.15 Q4 18 Q1 19 Q2 19 Q3 19 2019 2020 2021

Median Mean High Low

Source: Bloomberg, LLP – 29th October 2018 And the effect of such uncertainty can also be seen below; right now there is just over a 70% chance that GBPUSD will in the 1.2008 and 1.3837 range at the end of next March.

Date Price Range Probability

1W 12/06/18 1.2562 — 1.2972 72.4% 1M 12/31/18 1.2264 — 1.3306 71.3% Q4 18 12/31/18 1.2264 — 1.3306 71.2% 2M 01/31/19 1.2087 — 1.3524 71.7% 3M 02/28/19 1.1984 — 1.3661 72.2% Q1 19 03/31/19 1.1899 — 1.3785 72.3% 6M 05/30/19 1.1760 — 1.4002 72.7% Q2 19 06/30/19 1.1704 — 1.4097 72.7% 9M 08/30/19 1.1599 — 1.4283 73.0% Q3 19 09/30/19 1.1599 — 1.4361 72.9% 1Y 11/29/19 1.1478 — 1.4524 72.9% 2019 12/31/19 1.1434 — 1.4610 72.8% 2Y 12/01/20 1.1041 — 1.5424 72.2% 2020 12/31/20 1.1008 — 1.5495 72.1% 2021 12/31/21 1.0670 — 1.6249 71.6%

Source: Bloomberg, LLP – 29th October 2018 Making sense of the future

The ‘best’ case scenario

UK retains membership of the Single Market

Looking at this solely from the perspective of the outcome that would be interpreted most favourably by markets for sterling, any deal that allowed the UK to remain a member of the Single Market would be extremely positive. The big fears for markets are all around trade dislocation, upheaval to supply chains and the prospect of both tariff and non-tariff barriers.

The UKs issue with the Single Market is that membership is absolutely conditional on it continuing to support and accept the free movement of people, something that the Leave camp campaigned hard on and something that the Prime Minister has already said to be out of the question. This does appear to be one issue where there is a clear negotiating line and for that reason we see it as highly unlikely that the UK will wake up to this ‘best’ case scenario come the 30th March 2019.

UK back to polls for second referendum

Despite 700,000 people marching through the streets of London and several high-profile supporters – in both politics and popular culture – the likelihood of a second referendum, or even a vote on the terms of any deal, look remote. The truth is that it would be a bold move to challenge the outcome of an already democratic process in this way and, in any case, referenda can take a long time to organise (even if it doesn’t look that way from the outside).

That’s not to say that we have heard the end of the second referendum as a sub-plot in Brexit debate and discussions, far from it. It is also likely that idle referendum chat – or even a manifesto pledge from Labour for example – will breathe life into sterling from time to time, but, in the long-run, we just don’t think it’s likely.

Best case impact on sterling

So how high could sterling get in this best case scenario? We think it could be possible for sterling to regain the 1.40/1.42 against the USD and towards €1.19 against EUR should either of these outcomes come to pass. However, and crucially, we assign just a 10% probability of this scenario becoming reality.

Scenario likelihood Potential GBP-USD range Potential GBP-EUR range ~10% $1.40 — 1.42 €1.19 — 1.22 The ‘worst’ case scenario

‘No deal is… just a bad deal’

Midnight on Brexit Day – March 29th 2019 – without a deal is the nightmare scenario for many, not least any UK business that trades internationally. Overnight, years of established trade rules would disappear and the UK would immediately default to World Trade Organisation (WTO) rules, and that means customs checks and additional tariffs. No one is quite sure how this would play out in practice but many are predicting that progress through air and sea ports could slow to a crawl. A border between Northern Ireland and the Irish republic would also become necessary.

Away from the ports, expect some investors to start to withdraw capital from the city, concerned about their ability to do so further down the line. In such circumstances, inflation could rise as tariffs are levied and supply chains cut. Expect growth to slow to a crawl.

Worst case impact on sterling

Remember what happened to sterling after the result became clear? It fell 13% against the USD and 10% against the EUR almost immediately. And back then most commentators still actually believed that the UK would leave with membership of the Single Market in tact and with broad equivalence of regulations in place. We now know that’s not how this ends and most people seem to agree that what follows from a no deal scenario is not good, especially for the pound.

So how low could sterling go in this worst case scenario? We think that we would see an immediate decline in sterling beyond the recent lows of 1.17 against the USD and a move towards parity in GBPEUR – and that hasn’t happened since 2008.

We believe this is unlikely however and ascribe a 25% chance of a no-deal Brexit.

Scenario likelihood Potential GBP-USD range Potential GBP-EUR range ~25% $1.15 — 1.17 €1.00 — 1.02 The central expectation

Less a matter of if than when

Our central scenario is that a deal will be agreed between the UK and the EU which will be voted upon – and passed – by all necessary parliaments. It is possible, however, that this will not follow the timeline currently in place and that in itself may be problematic for sterling.

The deal as it currently stands would keep the UK as part of the Customs Union into the transitional period, keeping trade a lot more frictionless than a no-deal scenario.

Will it pass parliament?

It has too. Whether this is on the first vote or the second, it has to pass the UK parliament or we are back to talking about a no-deal. We think that the government loses the first vote – if only because the opposition will want to put as much pressure on what is seen is as a weak government – but enough cosmetic changes are extracted from the EU to allow the opposition to rally around the need for a deal.

Sterling volatility is all but assured within this time frame; politicians and sterling aren’t suddenly about to get along.

A bit-like Canada

As for what the future relationship looks like, we think that it will most closely mirror the Canada Free Trade Agreement that the EU signed last year, however, that still leaves the not inconsiderable issue of how services businesses can still trade with the wider EU. That’s one to tick off during the transitional period.

As for sterling, in the short term, any form of a deal is a positive and GBPUSD would likely break into the mid/late $1.30s as a result of the pricing out of any no-deal concerns. This is our central scenario and therefore we assign a 65% probability of this scenario becoming reality.

Scenario likelihood Potential GBP-USD range Potential GBP-EUR range ~65% $1.36 — 1.38 €1.16 — 1.18 How our predictions compare with the Bank of England assessment

At the end of November, the Bank of England outlined its own post-Brexit scenarios for the economy. It offered four eventualities based upon the current mooted agreement and on a possible ‘no deal’ situation, which included sterling predictions:

GBP — % Change as per USD 30/11/18 ($1.28)

“Economic Partnership, Close” $1.34 +5% “Economic Partnership, Less Close” $1.31 +2% “No Deal Transition, Disruptive” $1.09 -15% “No Deal Transition, Disorderly” $0.96 -25%

The Bank’s outline for a “disorderly” no deal eventuality naturally stole the headlines with predictions of a truly cataclysmic drop in sterling to below USD parity. Beyond even our worst nightmare, this is something the Old Lady herself admitted was an unlikely scenario.

But, the Bank’s more sanguine scenarios put the pound in and around $1.30 - $1.34, which broadly reflects our most likely outcome.

What can businesses do in the meantime?

“Prepare for the worst, hope for the best” Markets are not the only ones to dislike uncertainty – owners and managers of businesses trading overseas are not big fans either. If that includes you, you’ll no doubt be wondering what your strategy should be to see you through the next few months, especially with sterling likely to react so differently to the possible outcomes.

If there’s some solace here, it’s that you’re not alone. WorldFirst’s most recent Global Trade Barometer highlighted one of the stranger juxtapositions in the operations of UK SMEs ahead of the end of the Article 50 period.

Nearly half (48%) of UK SMEs – that’s around 2.7 million businesses – believe the value of sterling will decrease after the UK leaves (with a third predicting a fall of over 10%) to the EU and yet nearly two thirds are doing nothing to protect themselves against that risk.

It is almost like the majority of British SMEs have heard the storm warnings and seen the dark clouds gathering but still need to see the first drops of rain to believe it’s coming their way.

This winter, don’t forget your SCARF

To borrow a well-known phrase ‘winter is coming’ and we think that British SMEs would do well to remember their ‘SCARF’ to secure their businesses against the ill winds that may be on their way.

Set Budget rates — Set a budget rate that guarantees currency moves will not S hurt your profitability

Certainty of terms — Talk to suppliers and customers now to avoid confusion C caused by Brexit uncertainty later.

Access to markets — Put in place back-up plans with global conveyors to A ensure supply chains remain flexible and stockpile if necessary

Regulatory assurance — Compare regulatory environments for similar R products from non-single market competitors

Funding plans — Arrange facilities with alternative finance providers should F banks be unwilling to help

Conclusion

We have a little less than four months to go until the Article 50 period ends and while there is a deal on the table now, passing parliament is the last acid test. Until it does, UK SMEs and the pound are in as much uncertainty as before but with less time on the clock. Are you ready? Talk to a WorldFirst currency expert today on 020 7801 1050 and make sure Brexit doesn’t catch out your business.

020 7801 1050 www.worldfirst.com

World First WorldUK Limited First is UK registered is registered in England in Englandand Wales andas a LimitedWales asCompany: a Limited No 05022388 Company: and No is authorised05022388 by and the Financial is authorised Conduct by Authority, the Financial FRN:900508,Conduct under the Authority, Electronic FRN:900508, Money Regulations under 2011 the for theElectronic issuing of Money electronic Regulations money. Registered 2011 for office the issuingaddress: of Millbank electronic Tower, money. 21-24 Millbank, World First London SW1PMarkets 4QP. Limited is registered in England and Wales as a Limited Company: No 06382377 and is authorised and regulated by the Financial Conduct Authority, FRN:477561. Registered office address Millbank Tower, 21-24 Millbank, London SW1P 4QP.