The pound held broadly steady against the euro this week, although it weakened somewhat against other major currency counterparts, including the US and Canadian dollars. In part, because the Brexit process has been put “on pause”, as PM Boris Johnson put it.
This week PM Johnson tabled two motions in Parliament, the first containing the UK’s Brexit legislation, called the Withdrawal Agreement Bill (WAB), and the second, the timetable to pass this through the House of Commons to the House of Lords.
MPs approved the WAB by a majority of 30, suggesting that there’s now ample support to pass Brexit in Parliament, the first time this has happened.
1However, on the other hand, the WAB is a 110-page document. Yet Mr. Johnson wanted MPs to analyse this document in just three working days, for the UK to exit the EU by the end of this month. MPs decided that this wasn’t enough time to analyse the bill, so voted against the PM’s timetable. This saw the pound drop against some of its counterparts.
With Brexit “on pause” in Westminster, the EU has decided to grant the UK its second Brexit extension, reports the BBC today. However, Europe’s 27 member states will only decide how long the extension should be next week. The question remains about whether the EU will extend Brexit by three months, to January 31st, or by two weeks, to mid-November, as French President Emmanuel Macron prefers.
The EU’s decision may depend on whether the UK announces that it will hold a general election soon. If so, Brussels might extend the Brexit deadline to January 31st, as PM Johnson asked for in his recent letter. Otherwise, the extension could be only a fortnight, to focus minds at Westminster, and encourage MPs to approve the Brexit deal.
However, this runs the risk that the EU could be seen to be interfering in the UK’s domestic politics, encouraging MPs to reject the EU’s pressure. There’s some concern that this could lead to an accidental ‘No Deal’ Brexit next Thursday, which may impact on sterling exchange rates.
PM Johnson has announced that he’ll try to call a general election, to win back his lost Parliamentary majority. Labour leader Jeremy Corbyn may choose to vote against an election, until a ‘No Deal’ Brexit is off the table.
Mr. Corbyn could do this, because under the UK’s Fixed Terms Parliament Act, an election can only be held every five years, unless 2/3rds of MPs vote otherwise. In this case, Westminster may go into stalemate. Historically, general elections cause volatility for exchange rates.
Turning to the UK economy, it’s been a quiet week. The government’s borrowing reached £8.73 billion in September, marginally below forecasts for £8.8 billion.
Meanwhile, UK factory activity fell to -37 this month, according to CBI’s industrial trends survey, below hopes for -28. This could suggest that the US China trade war is weighing on UK factories, like elsewhere in the world.
Next week, it’s the current Brexit deadline of October 31st, and IHS Markit’s manufacturing PMI (Purchasing Managers Index) for this month, which could affect sterling too.
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