Sterling slides after British minister resigns over May’s Brexit plans

Sterling slides after British minister resigns over May’s Brexit plans

LONDON,. Sterling extended its losses yesterday after Jo Johnson resigned from Prime Minister Theresa May’s government over her “delusional” Brexit plans and called for another referendum on Britain’s EU membership.

The British currency was down as much as 0.7 per cent to US$1.2973 by 1700 GMT from around US$1.3040 before the announcement from Johnson, a junior transport minister.

The pound’s initial drop was slow, as the news came towards the end of the European trading day when liquidity can be tight.

It also weakened 0.3 per cent to 87.32 pence versus the euro, a session low.

In a damning critique of May’s Brexit negotiations, Johnson said the government had argued itself into a choice between vassalage and chaos, the worst failure of statecraft since the 1956 Suez crisis. Johnson, who voted in the 2016 referendum to remain in the EU, is the brother of former foreign minister Boris Johnson, a leading Brexit supporter.

May’s office said after Jo Johnson’s resignation that there would be no second referendum on EU membership “under any circumstances”.

The pound has traded as high as US$1.3176 this week, a three-week high, after Britain appeared to be edging towards clinching an exit deal with the European Union.

But disagreement within factions of May’s own party about how to proceed illustrate just how tough a sell it will be for the prime minister to get any agreement through parliament.

Work remains to be done before a deal is reached with Brussels, too. Both sides are struggling to decide on a mechanism for avoiding a hard border separating Northern Ireland, a British province, and EU member state Ireland.

The Northern Irish party that props up May’s government said yesterday that it would not support a Brexit deal that divided the United Kingdom.

ING analysts said a “Brexit overhang” remained over the pound despite recent signs of progress towards a deal with Brussels.

Economic momentum

Earlier yesterday, third-quarter GDP numbers showed a 0.6 per cent rise from the previous three months, in line with expectations, official data showed.

The data pointed to a British economy keeping up healthy momentum, although this may prove a high watermark ahead of Brexit. The numbers failed to elicit much of a response in financial markets.

Economist George Buckley noted that business investment, which contracted a worse-than-expected 1.2 per cent in the third-quarter, was the negative surprise.

“It seems that Brexit uncertainty is exerting a larger negative influence on business investment as we move closer to a deal/no-deal being confirmed,” the Nomura economist said.

The Bank of England signalled last week it could raise interest rates slightly faster than expected if a Brexit deal was agreed.

Money markets currently price in a full 25 basis-point hike by December 2019. — Reuters