Brexit is back in the spotlight and not in a good way. The UK is going down a path of uncertainty and what is likely to emerge…is chaos. The resignations by several top deputies brings to light the divergence on how to proceed. The EU is prepared for no deal which would plunge the UK into further volatility. The Sterling whipsawed along with UK Gilts, which can be followed on Vestle news, as the market begins to focus on a potential “no confidence” vote in the House of Commons.
May is fighting for Her (Brexit) Life
May is fighting to save the Brexit deal following several resignations that included Brexit Secretary Dominic Raab. As the architect of the deal, this provides very bad optics. This immediately created the possibility that there would be a challenge to the PM’s leadership. If the UK doesn’t arrive at a deal with the EU, it may cause them to lose access to one of the UK’s largest trading partners.
The European Union is scheduled to receive a deal but completely prepared for no deal according to EU Council President Donald Tusk. The resignations appear to be a clear sign that the UK will not go forward with a Brexit.
May announced the outline of the deal in the House on Thursday but was treated with discourse from both sides of the aisle. While there has already been an open letter to the special committee submitted to generate a non-confidence vote, it will take 48 Tory lawmakers to submit letters of no confidence to trigger a vote on leadership. Even if this happened, it is unlikely that most Tories will then vote in favor of ousting her from office. But what it does mean is that it’s likely that May would have lost support within her own ranks to get a Brexit deal voted through Parliament.
Labor is already lined up against the draft deal that May has put forward. Jeremy Corbyn, the leader of the Labour Party, said his party would vote against the draft deal. May’s deal would cut ties with the EU and leave the countries in the UK on proverbial islands, as they continue to follow the EU’s regulation and tariffs. By tethering the UK to the EU, it creates the worst of all worlds. It does not allow the UK to break free and create its own bilateral trade deals with third nations.
May is trying to provide something for everyone, but the only real answer is either to break free or have a general election voting on the merits of the Brexit. No deal will create closer ties with Northern Ireland than it will with the rest of the continent. The main concern for several ministers focuses on separate rules for Northern Ireland. Any change will immediately affect the financial markets. The UK could lose some of its asset to EU banks. Financial Conduct Authority has confirmed that it is providing real-time updates to financial institutions and will remain engaged.
Uncertainty is generating volatility which will continue to generate whipsaw price action in the pound, equity and UK bond market. A no confidence vote not only requires a chance in leadership but will also stall the Brexit. A move toward a general elections will keep uncertainty alive which could drive volatility higher.
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