Just when you thought it was safe to come out from behind the sofa, British politics offers up a new reason to dive back under; this time, in the form of parliamentary prorogation. An irritating word to say, and an even more irritating word to spell accurately at speed, prorogation is essentially the UK government suspending the current parliamentary session to allow time for a new Commons agenda to be written and announced in the Queen’s speech.
In normal times, this is a common procedure to allow the Government to bring new legislation to the House of Commons legislative timetable to be voted upon. This is how Boris Johnson has justified the prorogation; by framing it as a chance for the government to draw up new plans for the NHS, infrastructure and policing.
However, when considering that the UK already had an extremely small amount of time in which to agree on a deal with the EU, the insertion of a 21-day working day suspension had immediate adverse implications on the pound, dropping a cent against the euro in 45 minutes. Opposition parties and rebel Tory MP’s have been scrambling to arrange a no-confidence vote to beat the prorogation either before it comes into effect (9th-12th September) or just after (14th-30th October).
This is where the Brexit/Sterling back and forth essentially lends itself to three outcomes, with each bearing its own GBP risk, listed below in order of likelihood:
1. A no-confidence vote passes, the opposition parties and Tory rebels agree a caretaker government to legislate to forbid a no-deal and ask the EU for an extension; the pound likely rebounds higher in the mid-term.
2. Opposing MP’s fail to pass a vote of no-confidence in the government, or succeed but then fail to cobble together enough support to rule. No deal deadline passes, the UK crashes out of the single market; the pound likely nosedives.
3. Regardless of what is going on in the House of Commons, the EU capitulate to the UK’s new terms and agree to renegotiate the withdrawal agreement; the pound likely shoots up as both economies are spared the punitive tariffs a no-deal would bring.
Admittedly, the machinations of Westminster are not everyone’s cup of tea, with my own father commenting only this morning how he has had to stop purchasing his favourite broadsheet as he can’t bear to keep reading about latest developments and losing his temper.
Despite this, it is now more critical than ever with regards to the unfolding Brexit situation and its impacts on the pound to put into place a coherent and risk-balanced strategy on your currency exposure. The days of ‘hoping’ for GBP rebounds are well and truly gone as, at this point, in terms of likelihood, we have never been closer to a no-deal.
Whether you’re planning your business expenditures for the year ahead, expanding operations into another country, purchasing a holiday home abroad or emigrating – the reality is stark, without correct foreign currency planning, your costs will be going up.
Contact your account manager to discuss a hedging strategy today; our UK-based team are available 8.00-17.30 GMT on 02073269120 to discuss in more detail.
Have a great day.