The Bank of England has warned that leaving the EU in a no-deal scenario could lead to a recession worse than the 2008 financial crisis. In the bank’s Brexit analysis, it has found that a disorderly departure from the EU would send the pound plunging by a quarter and immediately shrink the economy by 8%. The latest figures are not what the Bank of England necessarily expects but is the worst-case scenario if the UK crashes out without a deal. The news comes after Philip Hammond’s Brexit analysis, where the Chancellor admitted that the UK would be worse off in all Brexit scenarios, however, Theresa May’s option is the best bet. Following a no-deal Brexit, house prices are expected to crash 30%, inflation could rise to 6.5% and unemployment in the UK could increase from 4.1% to about 7.5%. The bank has come under fire for creating hysteria but Carney insists that there is a difference between a forecast and scenario. Bank of England governor Mark Carney said: “These are scenarios not forecasts. They illustrate what could happen not necessarily what is most likely to happen.” “Taken together the scenarios highlight that the impact of Brexit will depend on the direction, magnitude and speed of the effect of reduced openness of the UK economy.” The latest analysis has also been seen as a final attempt to scare MPs voting in support of the prime minister’s Brexit deal. May will no doubt welcome Carney’s worst-case scenario to garner support for her deal. Andrew Sentance, who is a former BoE interest rate setter, challenged the bank over the analysis. “Does anyone really believe any of this as a real-world scenario? The Bank of England is undermining its credibility and independence by giving such prominence to these extreme scenarios and forecasts,” he said. As well as a disorderly departure from the EU, the bank also considered a “close” relationship between the UK and EU, and scenario of a “less close” relationship. UK Banks The Bank of England also conducted stress tests on 7 major UK lending institutions. The banks were put through a series of scenarios that were 2.5 times worse than the BoE’s most negative Brexit outcome. All banks passed including RBS, Barclays (LON: BARC) and HSBC (LON: HSBA). Marc Kimsey, Equity Trader at Frederick & Oliver, said on the latest Brexit analysis: “The takeaway is somewhat bitter-sweet. The banking sector’s efforts to get Brexit-fit are admirable but the thought of it being tested so rigorously 10 years on from the last disaster draws a wince.”

Nestle (SWX: NESN) has warned that the consequences of a no-deal Brexit will be “very severe”. The owner of brands including Nescafe revealed that whilst it was stockpiling ingredients in the event of a no-deal scenario, warehouses for frozen and chilled food are almost full. According to Ian Wright, the chief executive of the Food and Drink Federation, warehouses for storing ingredients were “for all practical purposes booked out at the moment”. “We don’t know if there are products in those places or people have booked the space to be careful or for production,” he said to theBusiness, Energy and Industrial Strategy Committee on Wednesday. “Some innovative providers are doing the Airbnb of warehousing which is very interesting, but for big and medium-sized businesses, that just won’t work.” The news comes as new analysis has revealed that the UK will be worse off in every Brexit-related scenario. The worst outcome, however, will be a no-deal. It is for this reason that Wright is in favour of Theresa May’s agreement, which has been declared by Philip Hammond as the best option. “The political declaration is excellent, but it is a list of new year’s resolutions. We don’t know if what we see now will remain intact.” “We like what we have now. No deal is infinitely worse than anything we could imagine, therefore the deal on the table is better than no deal, but is not as good as the status quo,” he added. “If you look at this purely from an economic point of view, yes there will be a cost to leaving the European Union because there will be impediments to our trade,” said Hammond on Wednesday. The deal that will be put to the vote in December will “absolutely minimise those costs,” he added. To persuade MPs and the public to support the Brexit deal, May has travelled to Scotland.  

Next week will see the final reshuffle of the FTSE for 2018, where all eyes will be on which big names leave or join the blue-chip index.

FTSE 100

For the FTSE 100, the most likely to drop off the list is the Royal Mail (LON: RMG). The postal group has struggled this past quarter after a shock profit warning in October and drop in market value. Expected profit dropped from £694 million to £500-550 million. Whilst the share price has slightly recovered, it will need to increase another 12% in the next week in order to avoid being dropped from the FTSE 100. Connor Campbell from Spreadex told UK Investor Magazine: “It’s been quite the year for Royal Mail. Having struck its highest levels since the start of 2014 back in May, it is now looking like it is going to crash out of the FTSE 100, the British institution’s out-dated letters division seeing its struggles only increase in a post-GDPR world.” “Just from a common-sense perspective, it makes sense; regardless of the online-shopping led growth in parcel volumes, the letters side of things is only going to exponentially shrink in the next decade or so.” Dubbed to replace the Royal Mail is insurance company Hiscox (LON: HSX), whose share price has more than doubled in the past five years.

FTSE 250

Funding Circle (LON: FCIF) and Aston Martin (LON: AML) are likely to join the FTSE 250 index following a disappointing debut onto the stock market. Despite Aston Martin shares falling below IPO price, the group remains positive for the future. “We’ve taken 105 years to get to an IPO [initial public offering]. I don’t think we’ll worry about what the shares are doing initially. We’ll always look over the longer term,” said the group’s chief executive. Groups that face getting bumped from the FTSE 250 include Thomas Cook, On the Beach, Premier Oil, Spire Healthcare, Civitas Social Housing and Keller Group. Thomas Cook (LON: TCG) issued a second profit warning in two months this week, sending shares down 30%. “Our final result is expected to be around £30 million lower than previously guided, due to a number of legacy and non-recurring charges to underlying EBIT. Within this, profit in our tour operating business fell £88 million as the sustained heatwave restricted our ability to achieve the planned margins in the last quarter,” said the group’s chief executive, Peter Fankhauser.

Restaurant Group (LON:RTN) shareholders approved plans to acquire Wagamama, as part of a £559 million takeover. Restaurant Group already owns culinary chains such as Franke & Benny’s and Garfunkels. Some shareholders had held reservations over the deal, namely the price and the impact on debt levels for the group. The deal is set to be financed in part through a £315 million cash call on group shareholders. Despite some initial opposition, shareholders approved the deal noting Wagamama’s comparatively strong performance in an increasingly difficult trading climate for restaurants. Well-known restaurant chains such as Prezzo and Jamie’s Italian have closed various underperforming sites in recent months, in a bid to streamline costs. Wagamama has 196 restaurants, 133 of which are in the UK. Other locations include The Middle East, New Zealand and Croatia. Back in October, when the deal was announced, Restaurant Group Chief Executive Andy McCue said: “Wagamama is a fantastic brand, with a market leading pan-Asian proposition, which has consistently outperformed the casual dining market in recent years,” “This transaction is an exciting and transformative opportunity to create a business which can pursue a truly multi-pronged growth strategy and create substantial value for our shareholders.” Shares in Restaurant Group are currently down -11.40% as of 11:30AM (GMT).

Adjusted profits at De La Rue fell 36% in the six months to 29 September compared to the same period a year earlier. In the first results since losing the contract to make British passports, the company said it has had to strategically review its operations. Revenues increased by 5% to £257.6 million. The group’s contract for British passports, which it has had since 2008 and is worth £400 million, will end in 2019. Replacing the company will be the Franco-Dutch group Gemalto. Martin Sutherland, the group’s chief executive, said: “Over the last six months we have conducted a thorough review of our strategy and market positions. In the light of the UK passport decision, we have concluded that we will refocus our identity business on the supply of higher margin security features and components.” “We maintain a strong order book and pipeline which provides good visibility for the second half of this year and into next year. With good revenue coverage from the group’s 12-month order book of £365 million and based on the orders planned for production and shipment in the second half, we are confident that we will meet our expectations for the full year.” The decision to end De La Rue’s contract was a controversial one. The group employs 600 people at the printing plant in Gateshead. “We have a very skilled, proud workforce in Gateshead and I am going to have to face those workers, look at them in the whites of the eyes and try to explain to them why the British government thinks it’s a sensible decision to buy French passports not British passports,” said Sutherland when the decision was announced earlier this year. “I would like to invite Theresa May or Amber Rudd to come to my factory and explain to my dedicated workforce why they think this is a sensible decision to offshore the manufacture of a British icon,” he added. Shares in De La Rue are trading +5.74% (1058GMT).    

Philip Hammond has said that whilst all possible Brexit scenarios will leave the UK worse off economically, the prime minister’s deal is the best option. The Chancellor told BBC Radio 4’s Today programme on Wednesday that after analysing the effects of the proposed Brexit deal, the UK economy will be “slightly smaller”. “If you look at this purely from an economic point of view, yes there will be a cost to leaving the European Union because there will be impediments to our trade,” he said. The deal that will be put to the vote in December will “absolutely minimise those costs.” “The economy will be slightly smaller in the prime minister’s preferred version,” he added. The vote will take place in Parliament on 11 December, where many MPs have said they plan on rejecting the deal. Hammond said that if Theresa May’s deal is voted down, the UK will be in “uncharted political territory”. “We will then have to sit down as a cabinet and a government and decide where to go on the basis of the vote, what we’ve seen in the vote and who has voted in which way because clearly we live in a democracy, parliament is sovereign,” he said. “If parliament makes a decision to reject the prime minister’s proposal, we will have to consider very carefully how to proceed.” “All of the other options have disadvantages and we have to look not only at the economy but also the need to heal a fractured nation. We will not be successful if we remain fundamentally divided and fractured on this issue.” Until the vote, the prime minister will travel to different areas within the UK to persuade MPs and the general public to vote for the deal. She will say during her visit to Glasgow: “We will be free to strike our own trade deals around the world, providing even greater opportunity to Scottish exporters.”