What We're Thinking

November 16, 2018

Ali Khan

Managing Director
BGR Business Advisors

UK Sterling Sinks as Brits Continue to Argue Which Foot to Shoot Themselves In

As I write this note, British Prime Minister Theresa May is talking about her commitment to her vision on BREXIT – there appears no THREXIT, or exit by the PM. The no-confidence vote requires 48 “yes” votes from Tory Members of Parliament in order to successfully launch a leadership change process, and according to press reports the no-confidence appears to have fallen short – however there is still time on this.

But things don’t appear as dire as reports suggest.

The no-confidence vote failed to achieve the required 15 percent hurdle. Furthermore, the resignations of two cabinet members (out of 22), again is not as terminal as the press headlines suggest. But it is clear there are disagreements within PM May’s cabinet on the BREXIT terms, let alone between the UK and Europe (something of course the Europeans are aware of).

Difficult questions remain about how united the kingdom can remain yet still deliver on the BREXIT mandate – both Northern Ireland and Scotland wish to remain in Europe. Nicola Sturgeon, leader of the Scottish Nationalist Party (SNP), has maintained her view that the UK BREXIT position is “unsustainable” for the SNP, and as for Northern Ireland, 56 percent voted in favor of staying in Europe in the same 2016 referendum.

It was always naïve to assume a yes/no approach would prove enough to bring closure on such a complicated subject and 40 years of legislation, and the continued political divisiveness that is now perpetuating simply proves this point.

It is no surprise that bank stocks were slammed on the FTSE today. The Royal Bank of Scotland, for example, was down 10 percent, wiping off billions of pounds in its market value. Investors are selling bank shares in the knowledge that the banking sector’s core business, which is to provide loans, will weaken or fall.  This signals that more short-term pain is coming for the UK economy unless there is political clarity.

Political progress cannot come without British voters going back to the polls – either through a second referendum or an election or both.  It is clear there is more to think about than simply the free movement of people, capital and good and services. Currently, the United Kingdom is not united.

Tagged: Brexit, Ali Khan, Stock Market, British Voters, UK Economy,

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