The British Pound firmed last week on comments from the European Union’s chief negotiator to the effect that the E.U. would be more amenable to making a unique deal with the U.K. which made the market see a “no deal” Brexit as less likely. Reports are floating around that certain important E.U. member state governments are putting more pressure on the E.U. to make the compromises necessary to secure a deal with the U.K. The issue is coming to a crunch point as the U.K. will legally cease to be a member of the E.U. on 29th March 2019, less than seven months away from now. It is widely believed that if a deal is going to be agreed, it will have to be agreed by the end of October or perhaps November at the latest, to allow enough time for its implementation prior to 29th March.
Writing in today’s Daily Telegraph, a key Conservative and Leave-supporting broadsheet in the U.K., Prime Minister Teresa May says she will not be pushed into compromises against her declared negotiating position which are against the national interest. She also rules out a second referendum, which many centrists in Britain are pushing for. Such a second referendum would in theory allow people to vote on accepting any proposed deal, but its real agenda is to allow a reversal of 2016;’s vote to Leave before it has been implemented. Prime Minister May firmly rules out such a second vote, correctly saying that “it would be a gross betrayal of our democracy”. I believe that this mainstream support for a second referendum has had a seriously corrosive effect on the fabric of Britain’s democracy.
Prime Minister May is trying to hold a center ground of a limited “Deal” Brexit with no further referendum. Unfortunately for her, she will be attacked from both sides, as much of pro-Brexit opinion see her outline of a deal as “Brexit in name only”, while there is a strong Remain movement which will try to halt Brexit by any means necessary.
I believe that Prime Minister May will be able to deliver from her side, despite the opposition from all sides. I think the key question is going to be whether the European Union wants to pay the economic price of refusing to offer the U.K. a good deal, as a “No Deal Brexit” will be damaging to the E.U. as well as the U.K. which is the world’s fifth largest economy with 44% of its trade taking place with E.U. states. However, the E.U. will have to pay a political price for any deal, with other member states then likely to start wondering why they don’t leave as well. It is not a mainstream position in other key member states yet, but it is becoming more so. Therefore, traders looking to the future of the British Pound would be better off paying more attention to leaks and statements coming from the E.U. negotiators than to what British politicians are saying.