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Political chaos in the British Isles (Daily analysis 13.03.2019)

13 Mar 2019 13:11|Marcin Lipka

Rejection of the UK's modified exit plan by the House of Commons increases the economic and political risks for the UK. The zloty remains stable. The euro is quoted around the 4.30 PLN level.

The most important macro data (CET - Central European Time). Surveys of macro data are based on information from Bloomberg unless noted otherwise.

  • Around 8:00 p.m.: Second vote on Brexit in the UK House of Commons. This time it is about non-contractual exit from the EU.

Failure after failure

Yesterday's early afternoon it was almost certain that the British Parliament would not adopt the last-minute modified Brexit plan. The opinion of the General Attorney Geoffrey Cox on the backstop, which was unfavourable to Eurosceptic Tory members, gave supporters of a "pure" Brexit a good argument for voting against Prime Minister May.

In total, as many as 75 members of the Conservative Party voted against the head of the party. In addition, practically the entire opposition rejected the May plan and, as a result, it was rejected by 149 votes in the House of Commons.

Monday's visit in Strasbourg by Theresa May seems to have complicated the whole sequence of events. Today's vote to reject the chaotic Brexit option is likely to go smoothly (members of the House of Commons do not want to leave the EU without an agreement), but the next Thursday's vote may become complicated.

The extension of the negotiation period made much more sense before the May-Juncker meeting in Strasbourg than it is now. Currently, the Union may not be very keen to prolong this pitiful political spectacle. The situation indicates that, before any new negotiations take place, the United Kingdom should first clean up the mess within its own country.

Thus, Brussels, of course informally, can suggest some other solution. This may be, for example, changes in the British government (the current Prime Minister has probably already run out of political capital) or early elections. Early elections may even be handy for conservatives. The opposition Labour Party has a lot of internal problems, and the current situation will be conducive to moderate conservatives. They will bring the Brexit to an end, but future relations with the Community will be very close (the Norwegian option combined with the customs union).

However, early elections obviously create risks that are unlikely to be in favour of the pound. If the result gives the Conservatives a greater advantage than at present (surveys show an increase in support for the Tory at the expense of the labourists), then it seems that this impasse will be relatively easy to get out of. In addition, the prospect of new elections would be a logical argument for extending negotiations for Brussels. Ultimately, such a solution is also good news for the pound.

Stable situation on the zloty

There is little information in the broad market except the matters related the pound. In the morning, data on industrial production from the eurozone were better than expected (1.1% year-on-year decline vs a consensus of minus 2.1% year-on-year), but they had a moderate impact on the euro. The main currency pair continues to move slightly below the 1.1300.

The zloty is also stable. Most transactions on EUR/PLN are concluded near the 4.30 boundary, a chance for some deeper movement on either side is relatively unlikely. The evening vote in the House of Commons is unlikely to have an impact on the broader market, as the outcome is a foregone conclusion. Decisions from the following days (changes in government, early elections) will be more important than voting at 8:00 p.m.

13 Mar 2019 13:11|Marcin Lipka

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

See also:

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