Later this morning the new Prime Minister and Tory leader will be announced with either Boris Johnson or Jeremy Hunt ltaking the reins at No.10. On Wednesday Theresa May will take her final questions in the Commons before offering her resignation to the Queen. The new leader will then meet the Queen and shortly after make a statement in Downing Street before entering Number 10 and start forming their government.
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On Friday, it is expected that the new PM will start to reopen Brexit negotiations. The 31st October is still the deadline for a decision to be made regarding Brexit, however with Parliament in recess from the 25th July there is unlikely to be much progress made until they return after the 3rd September.
We have seen the value of the pound fall against the euro from the start of May potentially due to increased odds of a no-deal Brexit and uncertainty surrounding the next Prime Minister. With the election of a new Prime Minister, we could see some confidence return back to the pound as the market perceives the UK to be on a clearer path to Brexit. Either way we could see volatility on the pound, therefore, any clients with a position to buy or sell the pound against any other currency, may wish to have a quick review of their position with their account manager.
Theresa May made several failed attempts to gain support from Parliament to pass her Brexit deal with the EU. However, the EU has said on many occasions that this is the only deal and there will be no amendments, which makes seem unlikely that the new Prime Minister will be able to get a Brexit deal through Parliament unless the EU agrees to some significant changes.
The Brexit uncertainty has had a toll on the UK economy and market, with weaker UK data being released over the past few months. The National Institute of Economic and Social Research believes there is a 25% probability the UK could tip into a recession in the coming months and a 40% chance of a no-deal Brexit.
Andy Haldane, chief economist of the Bank of England, said it was “plausible” that one of the “costs of Brexit is that not as much other stuff has happened”. He pointed to the Bank’s analysis from last year which indicated in a worst case scenario it could trigger a deep recession. "That was the conclusion we reached then. We've done no updating of that since. That's our best guess - my best guess - as an economist," he said.
Ongoing uncertainty on Brexit could see sterling movement against the euro, as investors shy away from the risk associated with the UK leaving the EU.
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