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GBP Falters as Uncertainty Thrashes European Markets

GBP Falters as Uncertainty Thrashes European Markets
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October 10, 2017 By: , No Comments

The United Kingdom is beset with all sorts of problems. On one hand, Brexit negotiations remain in doubt with no agreement in place between the UK and the EU. Now 6 months into negotiations, Brexit secretary David Davis and his EU counterpart Michel Barnier remain at loggerheads. There are several core issues holding up negotiations, notably the rights of EU citizens in the UK vis-à-vis the ECJ (European Court of Justice), Britain’s remuneration and pension payments to the EU, and the border with Northern Ireland. These critical components are proving to be the proverbial thorn in the side of a Brexit blueprint.

GBP Falters as Uncertainty Thrashes European Markets

 

Will the UK PM Remain in Power?

But there’s an even bigger problem brewing on the horizon, that of Prime Minister Theresa May. Reports have recently surfaced about growing dissension within the ranks of the Tory party. Various high-ranking MPs have expressed their disdain in Theresa May’s leadership, stemming from her poor showing in the recent general election. At this critical juncture in Brexit negotiations, a vote of no-confidence in Prime Minister Theresa May would invariably tear the party asunder and throw Britain’s political system into a quagmire. Ultimately, this would pave the way for the Marxist Jeremy Corbin to 10 Downing St.

While pundits are somewhat divided on the precise implications of Theresa May’s removal from office, there are safeguards in place to prevent a willy-nilly replacement of her. After the fourth round of negotiations between the UK and the EU, agreement on the aforementioned issues was hard to come by. The UK voted for Brexit on June 23, 2016, and in now 15 months later there is no strategic roadmap for Britain’s extrication from the EU. The UK has until March 2019 – the 2-year deadline – according to Article 50 of the Lisbon Treaty. Already, Britain has allocated an emergency ‘slush fund’ worth billions of pounds in the event of no agreement being in place. This money would smooth the transition for the UK, allowing enterprises to function in the absence of an agreement.

 

Challenges in the UK Economy

 

GBP Falters as Uncertainty Thrashes European Markets

 

If another leadership contest develops, it could result in yet another general election. According to various UK betting agencies, there is a one third chance of Prime Minister Theresa May resigning in October 2017, and a near-identical percentage chance of another general election in 2018. High inflation, low real wage growth, a manufacturing slowdown and Brexit-related concerns are weighing heavily on the economic performance of the UK economy. Purchasing managers and businesses remain dissatisfied with the current performance of the UK economy.

Foremost among the challenges in the UK economy are productivity. All of this reflects in the performance of the GBP, which is now at 1.3148 to the USD, while the GBP/EUR is trading at 1.1206, down significantly from its level on September 9, 2017 (1.1381). Over time, the GBP/EUR pair appeared to be moving towards parity – no longer. There has been a slight uptick in sentiment and this bodes well for the GBP.

Last week, the GBP plunged as much as 2 percent, after the dismal showing of Theresa May at the Tory Party Annual Conference. The lack of resolve vis-à-vis Brexit negotiations and settlement remains a point of contention in the party. There is growing concern that the hawks and the doves are tearing one another part, with no agreement between a hard Brexit and a soft Brexit.

What are your thoughts about Prime Minister Theresa May’s leadership in the UK? Do you think that foreign secretary Boris Johnson would do a better job? How about Brexit secretary David Davis?

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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.

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