Forex Trading Library

UK Parliament rejects Brexit bill

Uncertainty mounts as the Brexit deadline closes in

0 842

The UK was in the forefront last week as both economic data and Brexit related headlines dominated the news.

The week started off with the Brexit parliamentary vote. Heading into the vote, there were strong expectations that the UK Parliament would reject Theresa May’s Brexit deal.

Weekend lobbying did not help as the parliament eventually rejected the Brexit bill. This brought the ordeal back to square one and with less than two months to go.

The British pound reacted to the Brexit news more than the economic data. The GBP rallied after the vote on Theresa May’s Brexit bill lost by a majority of 230 votes.

The opposition Labor party leader Jeremy Corbyn vowed to pass a no-confidence motion in the parliament. That could have potentially lead to general elections if May fails to hold on to her leadership.

On Wednesday night, the Parliament voted on the no-confidence motion. The Prime minister managed to win with a small majority. With the UK government now in check, the UK and EU Brexit negotiations are likely to take off again.

UK inflation cools in December

The latest inflation report showed that consumer prices rose at a slower pace of 2.1% on the year in December 2018. This was in line with estimates and consumer price index eased from 2.3% from November.

The core inflation rate was however higher, rising 1.9% on the year in December. This beat forecasts of 1.8% and up from the month before. The headline CPI is now within reach of the BoE’s 2.0% inflation target rate.

The GBP, however, ignored the inflation data with Brexit staying in the headlines.

UK GDP growth falls to a six-month low

In the week before, data from the ONS showed that the UK’s gross domestic product expanded at a pace of 0.3% in the three months up to November. This marked a slower pace of increase compared to the 0.4% seen in the previous three months to October.

The latest GDP report showed the slowest pace of expansion in six months. On a monthly basis, GDP advanced 0.2% in November, up from 0.1% in October.

The construction sector was the most significant driver as it expanded 0.6% while services sector advanced 0.3%. Most of the gains in the services sector came on account from the holiday sales due to Black Friday.

The weakness in the UK’s economy continues to remain fractured with manufacturing production falling for the fifth consecutive month in November. Manufacturing sector fell 0.3% which marked the longest contraction since the 2008 financial crisis.

Rob Kent-Smith from the ONS said that manufacturing production and pharmaceutical industries had performed poorly.

The declines were also partly attributed due to the Brexit headwinds.

BoE’s Carney speech

The Bank of England Governor Mark Carney gave his testimony last week, a day after the Brexit vote came out. In his statement, Carney focused mostly on the repercussions of the Brexit deal. He said that UK banks are ready to deal with any extreme shocks due to Brexit.

He said that volatility was expected but noted that the recent rebound in the British pound following the rejection of the Brexit deal suggested that the prospects of a no-deal on Brexit had diminished.

The markets are expecting to see some form of the deal being made or an extension to the Article 50 which could push the March 29 deadline further by a few months.

Amid this backdrop, it is likely that the Bank of England will remain on the sidelines until there is more clarity on the EU and UK Brexit talks.

Looking ahead, the monthly labor market report will be coming out this week. With inflation easing in December, it is likely that wage growth could increase a bit putting more money in UK households.

Leave A Reply

Your email address will not be published.