Brexit continues to dominate the headlines, and the pound

Brexit continues to dominate the headlines, and the pound

The events of the last couple of days shows unequivocally that for May, the road ahead is tough.

Whilst her latest plan for Brexit reached a general (albeit unenthusiastic) consensus in Cabinet, she has been rocked by the resignations of UK's Brexit Secretary Dominic Raab and Works and Pensions Secretary Esther McVey, with further resignations very much on the cards.

Brexit and politics 

With up to a rumoured 90 Conservative MPs opposed to the proposed deal, the DUP feeling left out, and Labour waiting in the wings ready to capitalise on this weakness, May, and the pound, are suffering. The most umbrage has been taken at the prospect of Britain potentially being locked indefinitely in a customs union with the EU, and the additional checks on crossing the Irish Sea, breaching the DUP red lines on Northern Ireland’s position in the UK.

Brexit and personal finances

With a no-deal Brexit still looking possible, the biggest concern for UK citizens is likely concerns that a fall in property prices could lead to their homes entering negative equity. The Bank of England governor, Mark Carney has stated that property prices could fall by a stunning 35%, whilst unemployment may rise anywhere up to 9%. Such a shock to the economy would lead to a lack of demand for the pound causing it to slump further, although this may be balanced by a slowdown in individuals looking to leave the UK, unable to release enough equity through the sales of their homes, and facing increasingly stringent regulations with regards moving to EU countries.

Brexit and business

The news that Theresa May has got a consensus on her Brexit agreement is good news for business, but there is no guarantee that it will pass a divided Parliament. Juergen Maier, the UK CEO of Siemens told the BBC that, “We need to get behind it [May’s Brexit agreement] and we need to make [it] work. What we need is certainty.” The FTSE 100 rose 50 points in early trading, but comprising as it does, of a number of multinationals, who have interest across Europe, and indeed the world, any optimists should take this indication of increased business confidence with a pinch of salt. That being said, whilst Britain’s future trading relationship with the EU is not clearly demarcated, and the government is unable to negotiate trading agreements with other countries until a deal with the EU is reached, there is, undoubtedly, a speck of light at the end of the tunnel.

What next for the pound?

It’s impossible to predict currency movements at the best of times, and with so much uncertainty on the global and political front, these could not be considered the best of times to make predictions. Sterling has dropped nearly 2% against EUR and USD, and we stand on the precipice of further losses, or alternatively, significant recovery. Should the indications point that the UK is to drop out with no deal, one could expect the pound to plummet in the face of potentially devastating economic predictions.

However, if as many expect, May faces a vote of no confidence and comes through the other side bruised, but not toppled, she’d have more of a mandate to push through her Brexit deal, without leadership posturing acting as an unwelcome distraction. This newfound political solidity could shore up the pound somewhat, at least in the short term.

We will continue to monitor the market closely and keep you updated on any changes.

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