This week UK Prime Minister Theresa May confirmed that the Brexit negotiations are 95% complete, but the Irish border is the sticking point in the negotiations at present. However, Brussels have warned that as long as there is no solution for the Irish Border they believe the Brexit negotiations are 0% complete and this is a reason why the pound remains under pressure against most major currencies.
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In recent weeks Theresa May has offered to keep the whole of the UK in a temporary backstop which has a limited time period. Previously, the EU only wanted Northern Ireland to be part of the backstop, however recent reports are suggesting the EU have warmed to Theresa May's plan.
However, the EU are concerned about what happens if an agreement isn’t reached by the end of the transitional period and backstop agreement. The UK and EU would be back to square one. Consequently the EU want the UK to confirm now, that if the negotiations fail in the upcoming years, that there will be a backstop within a backstop, which means Northern Ireland remains part of the Customs Union which would keep the Irish border open but create a border within the Irish sea. This is the sticking point, as the PM has confirmed she will not agree to this.
Ultimately, either the UK or EU will have to cave in and accept the other party’s demands or the only other alternative is a cliff edge, no deal Brexit, which could be devastating for the UK economy and consequently sterling exchange rates.
On the 29th October, UK Chancellor Philip Hammond will deliver his autumn budget and this event could be a major market mover. In recent weeks the DUP have stated they could vote down the budget if they are not happy with how the Brexit negotiations are going. With the UK and EU's battle in regards to the Irish border ongoing, if the DUP vote the budget down an early general election could be on the cards.
Only last week the Emergency EU summit, which was going to take place in November to wrap up the Brexit negotiations, was cancelled.
Both parties are now suggesting that the last European Council meeting of 2018, which will be held on the 13-14th of December, will be the last practical date for a Brexit deal to be secured. This event I expect is the most important event for the remainder of the year and for clients buying or selling property this event could have a major impact on the exchange rate you receive.
If the UK and EU manage to secure a deal, the Prime Minister will not be out of the woods just yet. Most media stations are reporting that the House of Commons approval (also known as the meaningful vote) will take place at some point in the first week of January. This will be when MPs vote on the final Brexit deal. It’s very difficult to say what deal the MPs will be voting on at present, nevertheless this could be another key event for the diary.
My personal opinion is that the PM will secure a ‘fudged’ Brexit deal and regardless of whether or not Conservative MPs like it, they will vote in favour of the PM as they will be concerned that voting down the deal paves the way for a Jeremy Corbyn Government. Therefore, I expect the pound to remain under pressure short term but show signs of improvement at the end of this year and early next when the PM manages to finalise a Brexit deal.
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