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28.11.19 8 BREXIT STERLING was slightly higher on Wednesday, recovering from early loss- es following the third poll in a row that showed a dwindling Conservative lead before Britain's 12 December general election. e pound initially fell as much as 0.3% in early London trading after You- Gov data released on Tuesday showed the Conservative party's lead over La- bour narrowing to 11 points. e pound may also have been weak- ened by reports of a surge in under-35s registering to vote before the deadline at midnight last night, since young peo- ple are less likely to support the Con- servatives. e pound fell as much as 0.3% against the dollar, to a low of $1.2827 in early London trading, before recovering to trade around $1.2889. Against the euro, the pound was up around 0.3% at 85.41 pence . "So far, the market has been relatively complacent when it comes to the risks ahead," said u Lan Nguyen, FX strat- egist at Commerzbank. "Yes, the Tories still have the lead but they're certainly not gaining." e surge in young voter registrations contributed to Wednesday's pressure on the pound, Nguyen said, but that was a temporary development. She did not expect the pound to start depreciating significantly in the run-up to the election. "e focus will be increasingly on the polls now," she said. "Any surprise or any big move in any kind of direction, I think, will certainly become bigger the closer the elections are." YouGov will release seat-by-seat pre- dictions of the election outcome at 2200 GMT. e multilevel regression and post-stratification model accurately predicted the 2017 hung parliament, so it will be closely watched. "Anything other than a prediction of a significant Conservative majority would be GBP-negative from current pricing," Adam Cole, chief currency strategist at RBC Capital Markets, wrote in a note to clients. Although polling is generally accept- ed to be a poor indicator of voting out- comes, analysts say it is becoming more prescient as the election gets closer. Markets are not enthused by the out- look for the pound beyond the election. Prime Minister Boris Johnson says a Conservative win would mean quitting the European Union with a deal on Jan. 31, leaving just 11 months to negotiate a free trade deal with the EU or face dam- aging World Trade Organisation tariffs. Meanwhile, Labour leader Jeremy Corbyn is promising to nationalise vast swathes of the UK economy. While Conservatives are campaign- ing to "get Brexit done", Labour pledges a second referendum and the Liberal Democrats want to scrap Brexit without a referendum. More British people think of them- selves as 'Leavers' and 'Remainers' than as backers of a particular political party, a YouGov poll found, meaning that the politicians' stances on Brexit will be key. Pound options suggest a perceived risk of depreciation. e implied vola- tility premium — which dealers charge to hedge the risk of the pound falling — has grown. Pound hovers around $1.29 after Conservative lead dwindles THE Society of Motor Manufacturers and Traders has warned that UK car production could fall by over a third should the UK leave the EU without a trade deal. Figures from AutoAnalysis, drawn up on behalf of the SMMT, showed that in the absence of a free trade agreement with the EU, the UK would be forced to default to World Trade Organisation terms which would see the costs of car manufacturing go up by an extra £3.2 billion per year due to duties on imported car components and exports. e analysis indicates that in order for the industry to account for rising costs, automobile prices would also need to increase and annual output could de- cline to around one million by the year 2024, a sig- nificant drop on the 1.52 million cars produced in the UK last year. Speaking at the SMMT's annual dinner this week, its chief executive Mike Hawes called for an "ambi- tious, world-beating Brexit trade deal" which would "maintain the sector's competitiveness" as one of the UK's most valuable economic assets and maintain its "ability to deliver innovation, productivity and pros- perity for Britain." He also raised concerns that the production of new automotive models that could have taken place in the UK could be moved to elsewhere. Indeed, Honda and Ford have already announced the closure of UK plants, citing factors other than Brexit, while Peugeot is awaiting the outcome of Brexit before making a decision on the future of its Vauxhall car factory in Ellesmere Port. Hawes said: "e next government must deliver the ambition, the competitive business environment and the commitment needed to keep automotive in Britain." He also emphasised the need for tariff-free trade with Europe for the automotive sector, along with "regulatory alignment" with the EU. He said: "A close trading relationship is essential to unlock investment so we can deliver our goals: clean- er air, zero carbon emissions, and the ability to go on building our products and marketing them globally. "Rather than producing two million cars a year by 2020, a no trade deal, WTO tariff worst case scenar- io could see us making just a million." No-deal Brexit could cut UK car production by a third

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