Britain’s Supreme Court ruled today that the government of Prime Minister May must seek Parliamentary approval before triggering Article 50. But the widely-anticipated ruling turned out to be a dud for the markets as the pound saw little reaction to the news.
The U.K. Supreme Court ruling revolved around two key points for the market. One was the Parliamentary approval issue, but given the 100-seat majority position of the Conservatives, the approval process appears to be a mere formality.
A few months ago, the Bremain faction held out hope that given a chance, members of Parliament would reverse the referendum vote and keep the U.K. in the European Union. Since that time however, populist feelings have only hardened. And with the election of President Trump, Brexiters take solace in the fact that the U.K won’t be left out in the cold as the U.S. will remain a potent economic ally.
Of more concern to those who wanted Brexit to proceed on schedule was the devolution issue, asking the Supreme Court to rule on whether Northern Ireland, Scotland and Wales all had to be consulted before PM May could proceed. On that issue, the Supreme Court ruled in the negative, essentially paving the way for the trigger of Article 50 by the March timeline.
Cable (British pound vs the U.S. dollar) initially sold off on the news, which in effect removed the last obstacle from the U.K.’s exit from the European Union. But then it quickly recovered to trade near the multi-week highs of 1.2500. At this point, the market appears to have made peace with the Brexit issue and investors have settled into a wait-and-see mode to determine the full impact of Brexit on Britain’s economy.
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| The U.K. is the fastest-growing economy in the G-7 right now. |
Although most experts predicted that the fallout would be severe, with some even forecasting a whopping 8% decline in GDP, the actual U.K. economic performance since the vote in June has surprised to the upside. In fact, the U.K. is the fastest-growing economy in the G-7 right now.
Of course, many analysts, including yours truly, have argued that given the massive devaluation in the pound and the membership in the EU, the UK economy is in effect currently enjoying the best of both worlds as it gets access to the single market but at very competitive costs.
Still, the extent of Brexit’s economic impact is not at all clear. Even a formal trigger of article 50 would take two years to complete, during which time the U.K. would still maintain ties to the EU.
In addition, the situation within the EU is further complicated by the upcoming elections in Netherlands, France and possibly Italy. In all those countries, the populist candidates are enjoying massive support and should the populist parties win, the Brexit vote would look prescient as it would confirm the EU is in danger of breaking up anyway.
Under that scenario, the U.K. approach to bilateral negotiations could prove to be better than the current single market model, which explains why cable is trading near multi-week highs despite every indication that Brexit will become a reality very soon.
Best wishes,
Boris
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“the Brexit vote would look prescient as it would confirm the EU is in danger of breaking up”
—Exactly right Boris, which is one of the major reasons so many voted Leave.
Why stay with a sinking ship? Not even the rats do that!
Boris,
As I recall, you were quite critical of the Brexit outcome in the days following the vote. In fact, I believe you even called supporters “stupid”. Your tone seems to have changed a bit.
UK will pay a high price for it .I tink that it has been something not well weighted. Now is late…besides, we always suspected that UK could do use of been an isle.
I think Mrs May would very much like the Conservatives to have a 100 seat majority in the Commons but it’s a lot less than that – 16 at present.
The will of the people to leave, would not be an issue, if the EU was a success, Everyone wants to leave a sinking ship. Highly paid bureaucrats telling people what to do and how to live their lives is an anathema to democracy. An independent economy can be controlled by currency changes as already mentioned. Greece desperately needs to devalue. As a financial experiment the EU was destined to fail from the beginning.
Boris,
Thanks for this analysis. One of the earlier commentators mentioned the Tory majority being smaller, much smaller than stated by you and I believe he is correct. A parliamentary approval of Brexit is not a done deal yet though quite likely. As to the GBP USD rate, I suspect the lows are in for the time being. If you look at a weekly candle-stick chart, you will notice that Jan 16 week put it a major key reversal to the upside and lots of people look like being toast with short GBP positiions, against anything! Besides that, 1.21 is a major point on Gann’s square and it has resisted! Another important point I would like to add is, that perhaps GB will not Brexit, but the EU fall apart before the 2 years ave iver, I have been active in forex since 1971 and seen quite a few things happening. Charts only got really used in the late 1970’s and I then was one of the first non bankers in Geneva to use them. Since the introduction of the Euro (largely a French invention) I pretend that it will be the French who will blow it up. The trick was applied in earlier years by the French levaing the “snake” which existet before, just to rei-integrate at a more favorable level. Still the Euro is flawed and GB did well not to adhere to it.
True experience is the best teacher
Boris was vehement in his disdain for Brexit. He a globalist, no doubt, I guess Trump has him spinning like a top now. Great to watch!
If you doubt that the EU is “jobs and power for the boys” , watch even a small part of the Youtube video Brexit The Movie. It shows haow divorced the system is from thepeople they pretend to represent.
By the way, does anyone know if the tax-free EU dignitaries pay VAT in their special shopping centre in the stupid pancake stack building, Smacks of Soviet Russia before the wall came down.