The pound’s performance against its major currency counterparts was broadly positive this week, with sterling holding steady versus the euro, rising versus the US dollar, while making stronger gains against the Australian dollar.
In part, this reflects the fact that there’s been some progress in the Brexit negotiations, with UK Prime Minister (PM) Boris Johnson delivering his Brexit proposals to Brussels. It’s been reported that prominent Brexiteers in Parliament may accept Mr. Johnson’s plans, although there’s resistance from Ireland and the EU’s Parliament. Meanwhile, the UK economy slowed in September, according to trusted statistics this week, although the UK’s annualised GDP (Gross Domestic Product) figures for April and June were revised higher.
This week, PM Johnson announced his revised Brexit plans, both to Brussels and the Conservative Party’s conference. These feature amends to the Northern Irish backstop, which in its current guise would oblige the UK to stay in the EU’s Customs Union after Brexit, if there’s no future free trade deal, to preserve peace in Ireland. This would prevent the UK from pursuing its own trade deals.
So, to amend this, Mr. Johnson has proposed what’s called the “two borders for four years” solution. Here, Northern Ireland would share a mix of UK/EU regulations and decide which to follow in 2025. The EU hasn’t outright rejected the proposals, which may have contributed to sterling levels holding in the 1.12s against the euro.
In other Brexit news, this week The Times reported that, if PM Johnson is unwilling to ask for an extension to the UK’s Brexit deadline, the EU would accept another senior UK government figure doing this. Mr. Johnson might refuse to request a second extension to Article 50, because he’s repeatedly promised to take the UK out of the EU by October 31st “come what may”.
This is even though, in September, opposition MPs passed the Benn Act, which obliges Mr. Johnson to request more time to negotiate Brexit, if there’s no deal in place by October 19th. So, it’s thought that The Times report lessens the odds that there’ll be a ‘No Deal’ Brexit.
Turning to the UK economy, business output fell again in September, according to IHS Markit’s PMIs (Purchasing Managers’ Indices) of UK services, manufacturing and construction.
Brexit uncertainty is weighing on the UK, as well as the global slowdown, led by America’s and China’s trade war. However, UK Q2 GDP was revised up, to +1.3% year-on-year, versus forecasts for +1.2%, although on a quarterly basis the economy still shrank by -0.2%. Focus will shift to the see whether the UK economy can accelerate in Q3, between July and September.
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