Vincent Chaigneau, head of research at Generali Investment said that “the moment of truth” would come if and when an agreement was made with the EU, and if the Prime Minister could get her Chequers Brexit deal voted through Parliament.
Mr Chaigneau said to Bloomberg Markets: “The moment of truth will be when they come to find that agreement with the EU, which will be at the earliest, mid-November.
“But it could be later, and then we will have to see if that agreement is ratified by the UK Parliament.
“Clearly it’s not a done deal, and that is when we could see a rise in political uncertainty in the UK.
He continued: “Sterling is quite cheap, but it could go lower as the uncertainty remains very high in mid-November and December when the decisions are going to be made.
Mr Chaigneau advised investors to be “defensive” with their UK assets: “If you look at the market in terms of valuation, it’s actually relatively attractive, but of course there is a lot of political risk.
“It’s the same thing when you look at sterling. I think there is a downside in the near term for Euro-Sterling.”
However, the pound has jumped in recent hours after Michel Barnier suggested a Brexit deal between Britain in the EU could be signed within eight weeks.
Striking an optimistic note, the EU’s chief Brexit negotiator said concluding an agreement on a future partnership between the UK and the bloc by the start of November was both “realistic” and “possible”.
His remarks followed reports that the EU is poised to revise his instructions in the negotiations to allow more leeway to come to a compromise with Theresa May.
Sterling rose by around one per cent against the US dollar and half a percent against the euro after he spoke.
But the Prime Minister was also warned that any draft deal based on her so-called “Chequers” proposal could trigger a “catastrophic split” in Tory ranks.
Mr Barnier delivered his latest assessment of the chances of a deal during a question-and-answer session at a conference in Bled, Slovenia.
“I think that if we are realistic we are able to reach an agreement on the first stage of the negotiation, which is the Brexit treaty, within 6 or 8 weeks,” the veteran EU diplomat said.
“Taking into account the time necessary for the ratification process, the House of Commons on one side, the European Parliament and the Council on the other side, we must reach an agreement before the beginning of November. I think it is possible,” he added.
Following his remarks, Downing Street acknowledged that there had been a welcome acceleration in the pace of the Brexit negotiations over the summer.
Ambassadors of EU nations in Brussels are understood to have been told the gathering is likely to discuss giving Mr Barnier additional guidelines for his approach to the negotiations. One unidentified senior diplomat was quoted in the Financial Times newspaper as saying the new guidelines could “serve as a sort of mandate to do the deal.”
Despite the encouraging tone from Brussels, opposition to the Prime Minister’s Brexit blueprint agreed at her Chequers country retreat last month appeared to be growing.
The number of Tories backing the “Stand Up For Brexit” campaign calling for her to “chuck Chequers” had risen to 25 yesterday after a flurry of new signatures over the weekend.
Former Brexit minister Steve Baker, a supporter of the campaign, warned the Tories could be torn apart if Mrs May presses ahead with the plan.