During a tumultuous time for the pound, its value soared recently to its highest level in a week due to comments made by a lawyer representing Theresa May’s government. Last Tuesday, the legal professional confirmed that parliamentary ratification of Brexit is “very likely”, causing the value of the currency to leap. With the majority of MPs openly opposed to leaving the EU, investors have taken this as a beacon of hope amongst the grey clouds of Britain’s post-Brexit future.
The Value Of The Pound Soars
In the wake of the British referendum, the pound has been a consistently poor performer, so a reversal of fortunes offers a welcome opportunity for currency trading aficionados. Following a statement made on behalf of the country’s government, sterling rose to its highest level as investors experience a renewed surge of confidence.
The comment in question relates to the role of parliament in Brexit negotiations, with it now having been made clear that they will “very likely” have to ratify the eventual agreement between the UK and the European Union. This exposition has helped to inspire fresh confidence in the country’s future, as it is well known that a large number of MPs are strongly opposed to leaving Europe.
The Reality Of Brexit
Their reluctance, and the former lack of confidence on the part of traders, is understandable when one considers that over 40 per cent of the UK’s exports are sent to the EU, and that the financial services sector, which contributes in excess of 10 per cent of GDP, is especially reliant upon unfettered access to the Single Market.
The likelihood that this access would be jeopardised was primarily responsible for the consistent decrease in the pound’s value over the past two weeks. However, if parliament were in fact able to reject the draft settlement proposed by the government, they could remain a member of the Union after all, and thus retain their current role as a global economic powerhouse indefinitely.
‘Subject To Ratification’
Lawyer James Eadie, who is acting on behalf of the government in a High Court challenge regarding who has the right to trigger divorce talks, has confirmed the potential for this, explaining that: “The government view at the moment is it is very likely that any such agreement will be subject to ratification.” This would give members of parliament a role in determining the exact form of the final exit deal.
Despite this, conflicting information has emerged. Attorney General Jeremy Wright, also arguing on behalf of the government, has stated that once the EU has formally been notified of their decision to leave, the process will be irrevocable. This is clearly at odds with Eadie’s statement, as well as comments made by EU Council President Donald Tusk, who last week stated that ‘no Brexit’ remained on the table, “even if today hardly anyone believes in such a possibility.”
Inflation Hits A 21-Month High
Following Eadie’s comments, the pound rose to $1.2272, an increase of 0.7 per cent from late trading last Monday. Although this still symbolises a decrease of 17 per cent from the day before the referendum result, it is sterling progress nonetheless. Yet it cannot be attributed to Eadie’s comments alone. According to data from the Office for National Statistics, inflation has reached a 21-month high, which has strongly supported this trend.
In response, Deutsche Bank analysts have claimed that “forecasts are starting to migrate towards a three per cent consumer price index next year,” exceeding the Bank of England target of two per cent. If this is correct, it could limit the central bank’s ability to implement further measures to support the economy, such as additional interest rate cuts or quantitative easing.
Following the release of the GDP results yesterday however, which revealed that the UK economy had grown by 0.5.%, down from 0.7% last quarter, people and businesses alike have been scratching their heads as to whether Brexit will effect the economy, industry and everyday life for the better or worse. It seems that, for now at least, we will have to wait a little bit longer to find out.