Great uncertainty still surrounds the likely course of the UK government regarding its future relations with the EU. On this, for the time being, Ms. May has no mandate, and her government needs time to evaluate the different scenarios. For this reason, Article 50 may not be invoked for some time—most people think not before the year’s end or early next year. However, I see no purpose in toying with the idea that Brexit will not happen–an unlikely development that would tear apart the broken tapestry of British politics even more.
The European Council has thus far only taken a stand on procedure. Article 50 negotiations for extricating the UK from the EU and the negotiations on a new relationship will have to remain separate, with the former preceding the latter. While Ms. Merkel has stated that “there is no reason to be nasty,” she was clear on there being no room for “cherry picking”. In all likelihood, the Council will not take any initiative until the notification is received.
Uncertainty is probably the single most important variable in determining the immediate cost of Brexit to the British economy—especially its impact on investment. However, after some initial overshooting, it now appears that financial markets are not overreacting.