1st April and the UK remains part of the EU. I guess the joke is on us. However, the sterling is no longer getting the “kick the can” bounce. Prior to last week, GBP had benefited from delays as the perception was that the longer Brexit was postponed the higher likelihood of an “ultra-soft” or even No-Brexit result. Yet following the third defeat of the Prime Minister May's Withdrawal Agreement the GBP reaction was negative. Despite growing narrative (supported by wide protests), none of the eight options offered to PMs reached a majority. While permanent custom union and 2nd referendum got the closest, the hidden vote to reject Brexit did not appear. Our view is that should a vote go to the people it’s unlikely that Brexit will reverse. Today, MPs will get another vote, where the outlook for a consensus on a permanent custom union has improved. Yet the conservative party and cabinet remain divided and May is likely to call a new election rather face down a rebellion. Political chaos will not have a clear negative effect on sterling as the UK marches toward 12th April deadline. The choice between hard Brexit and present agreement is difficult. Least ugly contests generally increase the likelihood for a random event to blow apart any smooth forecast (baseline May Withdrawal Agreement will get the votes). With a limited event calendar, RBA and inflation reads will dominate it seem we are stuck watching the UK politics.
By Peter Rosenstreich
