Brexit Debacle Keeps Market Guessing
Fluctuating headlines around the ongoing Brexit negotiations continue to be a source of volatility for the market, as investors clamber to react to the changing status of Theresa May’s withdrawal campaign. After securing a compromise with the DUP last week over the highly sensitive Irish border issue, the latest reports show that May is now facing the serious risk of seeing her Brexit withdrawal bill being defeated in the commons, by her own Conservative MPs.
Rebel Conservative MP’s
Former attorney general Dominic Grieve said, speaking to the BBC, “there are quite a few who may support me – I think enough, if this comes to a vote, to defeat the government… I think there is a real possibility that it will happen”.
Those who have campaigned in favour of Brexit have attacked Grieve’s comments claiming that he is aiming to de-rail the entire Brexit process. Indeed, Brexit secretary David Davis has written to MPs in a last-minute attempt to avoid suffering a revolt in the commons tonight when May’s Brexit withdrawal bill is put before the house.
This development once again highlights May’s lack of political power after failing to secure an outright majority in the snap elections which she called earlier this year. There are reportedly around 20 Conservative MP’s who have declared their intent to vote against the bill, backed by Labour.
Labour Calling For Final Vote
Essentially, the Labour party along with these rebel Conservative MP’s is calling for final parliamentary approval of the changes to the withdrawal bill, in order to give MP’s a chance for one last meaningful vote on May’s EU withdrawal terms.
This line of thought is one that has received public backing, as the latest YouGov poll shows that 53% of those surveyed are in favour of securing a final vote on the terms of a Brexit deal. Done by either MP’s or once again through a referendum, with 21% supporting a final vote for MP’s and 32% supporting a final referendum. 33% said that the UK should leave on any terms the government secures.
Commenting in response to news of the planned revolt, PM May said “There are obviously colleagues who are concerned about processes in the House of Commons, and are looking for reassurance around the Withdrawal Bill, and we have been listening and talking to those colleagues.”
UK Inflation Jumps Above 3%
The market continues to be caught between opposing forces of Brexit uncertainty and increasing hawkish BOE expectations. The latest inflation data has added more fuel to the fire as headline inflation was seen jumping to 3.1% in November, moving above 3% for the first time since 2012 which will require OE governor Carney writing a letter to the Chancellor to explain the situation.
The bulk of inflationary pressures have come from the weaker pound which suffered a very severe decline over 2014 through to late 2016. However, as the majority of the pass-through from a weaker exchange rate has now occurred, the key question for the BOE will be whether “domestically-generated inflation” will start to increase again in 2018, with the key gauge for this as wage growth.
There has been a strong pickup in wage growth over recent months, moving from around 1.9% in May to 2.5% as of October. This is encouraging for the BOE, though with wage growth still below 2016 highs, the bank will likely want to see this coming back to around 3% before it deems wage growth strong enough. All eyes will now turn to the BOE’s December meeting tomorrow for further details on the bank’s assessment and outlook.
Price is currently battling it out at a key technical crossroads with resistance from the long term bearish trend line running from 2014 highs meeting medium term support from the bullish channel running from last year’s lows. Ongoing stalemate around Brexit is hampering any directional move but this should be a pivotal week for GBPUSD with May’s bill going before the commons tonight and the BOE meeting tomorrow. The 2017 swing high at 1.3657 is the key local upside objective followed by the 1.3829 early 2016 low.