An Important Week For Sterling Ahead of Brexit Vote – Introduction
In June 2016, the United Kingdom went to a referendum to vote on its membership into the European Union. Many investors expected the country to vote for the remain side. However, when the results came in, everyone was surprised when the country voted to leave the European Union. This was one of the biggest upsets in our lifetime because of the role the UK played in the union.
Since then, the UK under the leadership of Theresa May has been negotiating for a deal with the EU. These negotiations have taken more than two years and tomorrow, they will be put to the test. This is because the deal May has presented to the House of Commons will be voted on and many people expect the vote to flop.
The deal has one major flow. There is the issue of the backstop. The backstop is a simple measure about North Ireland, which separates the EU and the UK. At present, goods pass through the border with no checks because the countries are all members of the European Union. The backstop is therefore a measure of last resort to maintain this open border. After Brexit, the two sides of Ireland could be in different parts of the customs union. This will lead to a complex trading relationship between the United Kingdom and the EU. This is because today, at Dover, it takes less than 15 minutes for a truck to cross the border. Without a good deal, it will take days or even weeks for a truck to cross. This will lead to higher prices and loss of jobs in the UK and in the EU.
Tomorrow, the House of Commons will vote on the deal May has proposed. Both sides of the isle have said that they don’t want the country to leave the union without a deal. However, they all agree that the deal presented to them is flawed. This is mostly because it leaves the UK at the mercies of the UK. This means that the UK cannot leave the deal without the authority of the EU. It also leaves the UK at the mercies of the EU in terms of regulations.
In a paper by the government, it said that the current deal will shrink the country’s economy by 4%. The other option of exiting without a deal will shrink the economy by more than 9%. The Bank of England has said that exiting without a deal will present a major shock to the market, worse than that of the great financial crisis. Therefore, no side wants to leave without a deal because of the disruption that will take place.
This weekend, Labor leader Jeremy Corbyn published an opinion piece arguing that the country needs either a fresh election or another referendum. This being the biggest vote by Theresa May, it could mean that she will be forced to resign. In fact, some in her party have suggested that she resigns from the position. Another referendum will be a victory for globalists and liberals who have always supported the European Union.
Therefore, this week, the currency to watch will be the sterling as the parliament goes to vote. This is also important because of the data that will be released today. This data will be on employment and the GDP numbers.