Sterling exchange rates were thrown into limbo following yet another heavy rejection of PM May’s deal in the Commons yesterday evening. As a result, MPs will today be voting as to whether or not the UK can leave on the 29th March with a No deal.
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The lack of reaction from the markets overnight could reflect the range of options the Government may choose to pursue, with investors hedging their bets until a clear path has been selected.
The Cabinet is due to meet first thing this morning ahead of publishing updated plans for the Irish border and tariff standards.
However it could appear as though the crushing defeat yesterday may well force the Government into the corners it might not be comfortable with.
With the EU having already suggested any further concessions are off the table PM May could struggle going back to Brussels to negotiate before the end of the month, and maybe even after.
If a no deal Brexit is temporarily taken off the table during today’s vote, with an extension to the deadline looking increasingly likely, it appears that the road ahead for sterling may prove to be very rocky indeed.
The threat of a no-deal, an important negotiation driver for the UK, could well continue to handicap sterling’s progression after the 29th.
Equally, as mentioned by May’s opponents after the vote yesterday evening, a vote of no confidence, another general election and indeed potentially a second (binding this time) referendum still remain distinct possibilities the likes of which could bring extreme volatility further down the line, making buying foreign currency a very tricky business.
On the upside, sterling holders were given a welcomed boost as the latest set of industrial and manufacturing data showed a slight pick-up in January, effectively cancelling out the heavy drop in December.
The overall outlook remains bleak however with the UK on course to post its slowest growth figures for over 10 years.
The timing of this could prove to be particularly relevant with the markets now turning to Hammond’s budget, due for release today, for indicators as to how the Government will be looking to bolster growth figures moving forward.
The expectation for now however is that Hammond might be forced to use his statement to provide extra financing to public services instead. In recent weeks head teachers have taken to the streets to call for extra funding for state nursery schools whilst at the other end Hammond has received a letter from every London MP calling for more support to the Metropolitan Police in its campaign against knife crime.
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