The British pound’s latest selloff has raised fresh concerns about Britain’s plans to exit the European Union. Sterling plunged to fresh 31-year lows against the US dollar this past week, as traders reacted to remarks from British Prime Minister Theresa May indicating that she will pursue a “hard Brexit” from the European Union.
“Let me be clear: We are not leaving the European Union only to give up control of immigration again,” May said October 2. “We are going to be a fully independent, sovereign country—a country that is no longer part of a political union with supranational institutions that can override national parliaments and courts.”
The British leader also indicated that she will formally notify Brussels of her intent to leave the EU by the end of March 2017, leaving little room to speculate about Britain’s future.[1]
But not everybody is pleased with May’s “hard Brexit talk.” Business leaders have written to the prime minister urging her to avoid such an option.
“The government must make sure that the terms of the deal to leave [the EU] ensure stability, prosperity and improved living standards,” business leader said in the letter, released on Friday. Among the signatories were members of the Confederation of British Industry (CBI), the International Chamber of Commerce (ICC) and the Engineering Employers’ Foundation (EEF).[2]
Britain’s Labour party recently backed plans for a parliamentary vote that outlines the terms of the Brexit negotiations. Labour, along with an alliance of other opposition parties that also includes Tory Members of Parliament, are vowing to put a stop to the so-called hard Brexit. MPs that included Ed Miliband, Nick Clegg and Anna Soubry have told media outlets there was “no mandate” for leaving the EU from June 23 referendum result.[3]
Brexit fears led to one of the British pound’s worst ever declines this past week. On Friday, October 7, sterling briefly fell more than 6% in the early hours of the Asian session. According to analysts, the fall occurred in the span of a few minutes, a clear sign that traders were becoming anxious about what a hard Brexit might entail.[4]
The GBP/USD tumbled from 1.2600 to as low as 1.1789 Friday. It would later settle in the low-1.24 region, its weakest in more than 31 years.
Stocks traded on the London Stock Exchange have faired just fine in the wake of May’s latest remarks. In fact, a plunging pound may have helped the heavily export-driven FTSE 100 Index, which recently surged to 16-month highs. The FTSE 100 was last seen trading near record levels.[5]
The British economy appears to have weathered the immediate impact of the June 23 Brexit vote. However, policymakers are still bracing for the worst, with the Bank of England (BOE) warning repeatedly that the worst is yet to come.
With May set to trigger Article 50 of the EU Treaty by end of March or early April, we are looking at a tentative timeline of March/April 2019 for Brexit to finally come to fruition. However, experts remain skeptical that the UK and EU will be able to iron out a new trade agreement in that time period. Theresa May has appointed a Secretary of State for Exiting the European Union in order to navigate the Brexit process.
The EU stated immediately after the Brexit vote that it was prepared to begin the negotiations.
“Any delay would unnecessarily prolong uncertainty. We have rules to deal with this in an orderly way. Article 50 of the Treaty on European Union sets out the procedure to be followed if a Member State decides to leave the European Union,” the EU said in an official statement the official statement said. “We stand ready to launch negotiations swiftly with the United Kingdom regarding the terms and conditions of its withdrawal from the European Union.”[6]
[1] Sam Bourgi (October 3, 2016). “S&P 500 Futures Decline on Brexit Risk.” Economic Calendar.
[2] Kevin Rawlinson (October 7, 2016). “Business leaders urge Theresa May to avoid hard Brexit.” The Guardian.
[3] Jon Stone (October 10, 2016). “Lanour demands parliamentary vote on Theresa May’s ‘hard Brexit’ negotiation plan.” The Independent.
[4] The Associated Press (October 7, 2016). “Britishi pound endures one of its worst days.” CBC News.
[5] Nick Gutteridge (October 7, 2016). “Pound FLASH CRASH but FTSE 100 continues to soar to RECORD HIGH in Brexit business boom.” Express UK.
[6] European Commission (June 24, 2016). Daily News 25/06/2016.
