Market Update: An Attempt to Dismiss No-Deal Brexit

12

June, 2019

AK Equity Group

This Week: Following the Sterling

On Wednesday, June 12th, UK Labour Party leader Jeremy Corbyn led a cross-party effort to suspend Parliament’s rules in hopes of dismissing a “No-Deal” departure from the EU. Action was taken by the Labour Party to ensure that a “No-Deal” Brexit option will be impossible for the British. This was done because the Labour Party deemed it necessary in order to prevent the new prime minister from pulling Britain out of the EU without the consent of parliament.1 In response to this effort, members of Parliament rejected their motion to prevent a “No-Deal” Brexit event.

If Parliament opposes a “No-Deal” Brexit, then why did they reject the Labour Party’s movement to prevent a “No-Deal”? The reason why, as former prime minister May says, is because of the “crucial principle” of the government remaining in control of the Commons agenda, which is an agenda held by Parliament and run by the government. Former Prime Minister May also mentions: “It is important [that] the government is able to control the order paper and those decisions about what parliament is going to do are not handed over to Labour and the SNP”.2

If the movement were to pass, there would be no chance of a “No-Deal” divorce in the future, and the Commons agenda would be in the hands of the Labour Party on June 25th. This would allow the Labour Party to bring forward legislation aimed at preventing the UK from leaving the EU without a withdrawal agreement on October 31st.2 However, since the movement was rejected, the Labour Party will be unable to seize the agenda on June 25th in order to prevent the future prime minister from administering a “No-Deal” Brexit.

Boris Johnson, Leading Candidate for PM

As candidates are running for the role of prime minister of the UK, several EU officials have taken the time to mention that they will not allow the new prime minister a chance to renegotiate the current Brexit deal; this in turn offers minimal breathing space for the Tories’ next leader. Boris Johnson, a leading candidate for the leadership position has spoken out about his plans if he becomes Theresa May’s successor. His goal as a leading candidate is to avoid a “No-Deal” Brexit and to renegotiate the existing Brexit deal.3 However, as mentioned previously, the EU is not looking to give the new prime minister a chance to renegotiate, which would negate Johnson’s plan. Johnson also claims that it would be “irresponsible” to disregard the possibility of renegotiation, and believes that vigorous and serious preparations should be made to ready the UK in the case of a “No-Deal” exit.3,4

 

Short-Term Impact on the Sterling

With that in mind, a “No-Deal” Brexit is still possible, and there remains the possibility that it will lead to a crash in the UK’s market economy over-night (short-term) with quick recovery. On the other hand, the Sterling is predicted to rise if a “No-Deal” divorce is avoided in the future, and if Parliament continues to show that they can prevent a “No-Deal” exit. At the time of this writing, the GBP/USD exchange rate ranges between a value of 1.26 and 1.27 as a result of uncertainty between the UK parties.

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