Brexit: What Next?
I am bored writing about Brexit, but it is certainly the most important political event going on in the world right now, in terms of how currency markets will be affected. The British Pound has made some volatile movement already today, with a total range just over the last few hours of 275 pips. I’ll try to explain what’s going on succinctly and then talk about what is likely to happen next.
An outline Brexit deal has been agreed between the British Government and the European Union. It was ratified yesterday by the Cabinet, but the Minister in charge of Brexit subsequently resigned, and there were further resignations by pro-Brexit members of the Government. To go into effect, the terms of the deal will have to pass a vote by the British Parliament. It is very difficult to see how this vote can possibly pass, as the terms of the deal have been met with fury from a substantial minority of Conservative MPs. It seems likely they will vote with the opposition parties against the terms of this deal.
To further complicate matters, it seems that later today, a leadership challenge will be formally launched against the Prime Minister, as there are credible rumors that the minimum 48 Conservative MPs required to trigger this have just done so.
As I outlined yesterday, if the British Parliament passes no further votes on Brexit, the U.K. will leave the E.U. on 29th March 2019 with no deal. However, I think this is extremely unlikely to happen. For some time now, I have been forecasting that a deal would be agreed, on practical grounds – it will be in everyone’s economic interest, while British democracy will survive as some form of Brexit is at least delivered to the people who voted for it in Britain’s largest ever vote in 2016.
I now believe I was wrong. I believe that the British Government has deliberately agreed to such a bad deal in order to see the deal fail in Parliament. The Government will then renege on Brexit and offer a referendum which will include the option to Remain.
The terms of the deal put forward effectively keep Britain under the jurisdiction of E.U. institutions with no legal mechanism in place to allow Britain to unilaterally leave them. It will literally relegate Britain to a colony of the E.U. in several important aspects, as Britain will have no representation within the E.U. decision-making process.
This is a dark day for Britain’s democracy, which is looking increasingly unlikely to survive if it proves unable to implement the democratic decision made by the British people in 2016, and the bitterness caused by this whole saga will probably poison the nation’s politics for decades.
What this means for the Pound if I am right: the minute Parliament votes to hold another referendum with Remain as an option on the ballot paper, expect the Pound to soar.
If I am wrong, Britain will probably move towards No Deal, and if that happens: expect the Pound to plummet.
In the meantime, expect lots of volatility. It looks as if it will take at least three weeks for any crucial vote to be put before the British Parliament.