The pound has enjoyed gains versus its major counterparts including the euro, US dollar and Australian dollar on the interbank currency market this week. In part, this is because it now seems likelier that a Brexit deal could be agreed, while UK economic data this week has consistently exceeded expectations.
Also, it’s worth noting that the UK government is considering shifting its position over Northern Ireland in regards to Brexit, say reports today. According to The Times, Mr. Johnson’s administration is thinking about letting Northern Ireland remain under some EU rules after Brexit. This is to prevent a ‘hard’ border on the island of Ireland, while allowing the UK to pursue independent trade deals.
However, were Mr. Johnson’s government to accept this compromise, it would mark a constitutional division between Northern Ireland and the rest of the UK. For this reason, these reports should perhaps be treated with caution. For example, Northern Ireland’s Democratic Unionist Party (DUP) leader Arlene Foster tweeted following The Times article that: "anonymous sources lead to nonsense stories.”
To begin with, this Monday 9th September the Queen gave her Royal Assent to opposition MPs’ law, obliging Prime Minister (PM) Boris Johnson to go to Brussels, to request an extension to Article 50, the UK’s Brexit negotiating deadline. As a result, it’s thought that the UK will now remain within the European Union (EU) beyond the current limit of October 31st, perhaps until the end of January. This will give Parliament extra time to finally decide what sort of Brexit it wants, call a general election, or even arrange a second Brexit referendum, if a majority of MPs choose to support this.
In addition, a Brexit deal looks likelier, because this week PM Johnson has changed tac, and seemingly become much more optimistic about the possibility of reaching an agreement with the EU. This may be because the PM suffered six defeats in the House of Commons over the past few days, and he’s lost his Parliamentary majority, encouraging Mr. Johnson to try a new approach. For instance, the PM said in Dublin this Monday 9th September, with Ireland’s PM Leo Varadkar, that it “would be a failure of statecraft” if there’s a ‘No Deal’ Brexit, and that he “wants to get a deal”.
Although he law obliging Mr. Johnson to request a Brexit has been passed, the PM still hasn’t conceded that he’ll ask to extend Article 50. For example, Mr. Johnson told Parliament this Monday 9th that: “This government will not delay Brexit any further”. In addition, Parliament has now been prorogued until October 14th, following Mr. Johnson’s instructions (although there are three court cases challenging this.
If the PM decides to bend or break opposition MPs’ law over extending Brexit, MPs are currently in a weak position to challenge him. This may be worth watching for.
Meanwhile, looking beyond Brexit, the UK’s economic data this week has consistently exceeded expectations. This points to Great Britain’s resiliency, in spite of the daily shifting headlines from Westminster and Brussels. For example, we learnt on Monday that UK GDP (Gross Domestic Product) expanded by 0.3% in the three months to July, beyond forecasts for 0.1%. On Tuesday it was revealed that UK unemployment surprisingly fell by -0.1% in the three months to July, to 3.8%, a new 45-year low. Also, Average Earnings Including Bonuses climbed to 4.0%, an 11-year high.
Looking ahead, sterling’s value could continue to be affected by the Brexit news, as well as next week’s economic releases. These include UK inflation figures on Wednesday 18th, plus the Bank of England’s interest rate decision on Thursday 19th, in which it’s forecast to hold rates at 0.75%.
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