BNY Mellon: UK: The Week Ahead


BNY Mellon: UK: The Week Ahead

By Simon Derrick, Chief Currency Strategist, BNY Mellon

  • Tuesday should see meaningful vote in Parliament on EU withdrawal deal
  • Wednesday could see no confidence motion in  government being tabled
  • January 21 could see the government making a statement on how it expects to proceed

Another week of political uncertainty for the UK and potential volatility for GPB lies ahead. Here’s what to look out for.

January 15:

UK MP’s vote on the withdrawal deal from the EU

 - Should MPs wish to avoid a no deal Brexit (the default option from triggering Article 50) then voting for the deal the government has negotiated with the EU is the most straightforward alternative. However, out of 639 active lawmakers in Parliament there are 313 on the opposition benches and 10 DUP MPs that remain opposed to the deal while 117 Conservative MPs registered their lack of confidence in Theresa May a month ago.

 - In a recent YouGov poll 25% of those surveyed said they wanted their MP to vote for the deal while 40% said they would want their MP to vote against the deal.

January 16:

Potential date for confidence vote in government.

 - Labour leader Jeremy Corbyn said last week that if the government can’t pass the Brexit deal then there must be a general election. 

 - Mr Corbyn refused to clarify exactly when he might call the vote of confidence when asked by the BBC on Sunday.

 - It would take four Democratic Unionist Party MPs to vote against the government (rather than just abstaining) to pass a motion of no confidence.  

 - If a motion of no confidence in the government is passed by a simple majority and 14 days elapse without the House passing a confidence motion in any new Government formed, a 25 working day countdown to a general election kicks in.

GBP and general elections

 - The latest YouGov poll shows support for the Conservative party at 40% and Labour on 34%.

 - GBP has tended to put in an improved performance when the Conservative party has done relatively better in opinion polls in the run up to general elections (although this wasn't particularly true in 2005). Interestingly, in 1997 this happened even though there was no realistic chance of a Conservative victory emerging. This suggests that relative shifts in polling in the run up to an election can have an impact on GBP even if the absolute gap between the two main parties remains substantial.

 - The market has tended to dislike uncertainty (with 2010 providing the best example of this).

 - There has been a tendency towards lower volatility in the run up to the election with the only real exception being 2010.

 - The threat of a coalition in 2010 was treated poorly by the market. This came despite the fact that GBP remained relatively stable during the period of the 1974 Labour minority government and rallied during the time of the Lib/Lab pact in the late 1970s.

 - The price action on GBP in the run up to the election is not necessarily a guide to what happens afterwards. GBP performed well between 2010 and 2015 during the lifetime of the coalition government. GBP was also consistently strong through most of the period of the three Labour governments between 1997 and 2010.However, it is also worth recalling that GBP suffered badly in the aftermath of the October 1974 vote.

January 21:

Government to make a statement to the Commons on "how it proposes to proceed” should the vote on Tuesday fail and the no confidence motion fails (or isn’t brought to the House of Commons)

 - MPs voted last week to reduce the time the government has to produce a plan B should the negotiated deal with the EU be rejected by Parliament to just three working days.

 - Following the statement to the House of Commons the government would have a further seven days to move a motion in the Commons, allowing MPs to express their view on the government's course of action.

 - MPs could amend the motion, telling her in effect "we want you to do something else”. This could, for example, include a call for a second referendum.

 - While the government might find it hard to ignore such a vote, it would not carry the legal force to stop the UK leaving without a deal next March.

A second referendum?

 - A second referendum could only happen if the government brought new legislation to hold one and secured the approval of a majority of MPs. 

 - The What UK Thinks: EURef2 Poll of Polls shows 53% in favour of remain against 47% for leaving the EU.

The government’s position

 - The government remains opposed to a referendum.

 - Recent polling suggests why this might be the case. In the YouGov poll highlighted earlier those surveyed were also asked: “Please imagine that a Brexit deal passes with the support of most Conservative MPs and most Labour MPs….How would you vote at the next election?” 42% replied they would vote Conservative while 26% said Labour.

The Labour Party’s position

 - Another YouGov survey showed that 72% of Labour Party members support a referendum and that 88% say they would vote remain in such a vote.

 - Should the government survive the confidence vote Labour party policy is that Labour leader Jeremy Corbyn seeks a second referendum.  However, he remains reluctant to say that this would be Labour’s next step should the vote of no confidence in the government fail. It might also be worth noting that the Labour leader has been historically opposed to the EU.

For further consideration

 - Talk has surfaced several times of an extension to Article 50. However, the UK PM’s office has reiterated that extending Article 50 has been ruled out.

 - The Sunday Times reports that “at least two groups of rebel MPs are plotting to change Commons rules so motions proposed by backbenchers take precedence over government business, upending the centuries-old relationship between executive and legislature.” The paper says “Downing Street believes that would enable MPs to suspend article 50, putting Brexit on hold, and could even lead to the referendum result being overturned.”

 

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