This week saw the GP Pound surge to a two month high following an apparent breakthrough between the UK and the European Union this week. The break though circled around commonly dubbed ‘Divorce Bill’ which the UK would have finally agreed to pay. In recent weeks astronomical amounts have been discussed and which has risen from £20BN to £40BN.
It is now understood that the figure could be closer to £50BN, with May now holding very few cards it would have appeared that the UK is slowly bowing to the pressure the EU has piled on over the last few months. In any case, the developments breathed life into deflated GB pound and potentially tees up talks over a potential reciprocal trade agreement between the UK and Europe. However, Brussels was short to advise that the payment doesn’t guarantee a trade deal.
As the news of the UK’s divorce bill agreement circulated, ex-cabinet members and brexiteer MP’s voiced their conditions for payment of the £50BN which many thinks should only be paid under certain conditions which would have to be approved by the European Union. These include a stop of freedom of movement of EU citizens to the UK. The agreement of a reciprocal UK and EU trade deal, which incurs no tariffs. Plus, the UK to have the ability to govern its own courts and make its own laws.
Whilst many ex MP’s and entrepreneurs have voiced their concerns over the amount and terms of the UK’s divorce payment, others have looked to block the payment entirely. Tory MP Jacob Rees-Moggs didn’t waste time in rocking the boat stating on UK radio that:
We have no legal obligation under international, EU or UK law to pay anything if we leave without a deal.
With apparent progress and talks evolving you would imagine that comments that Rees-Moggs comments will have been far from appreciated.
One major hurdle that the UK just can’t seem to resolve is the questions surrounding a hard border between the UK and Northern Ireland. Northern Ireland naturally wants to remain in the customs union if not the single market. A hard border and no deal outcome would essentially jeopardise the nations future opportunities to trade with the EU.
In recent days and with a lack of resolution on the Irish border situation, i.e. the of borders between the UK and Northern Ireland; it is understood that Northern Ireland is now considering vetoing the first round of Brexit negotiations with the Northern Ireland’s EU agriculture commissioner expressing the necessity for a soft border.
The Irish government has voiced a potential solution which includes a special dispensation which would allow Northern Ireland to be granted special status.
Theresa May’s week began so promisingly GB Pound rates higher, a potential divorce bill agreement and a generally more appealing outlook for the fresh batch of Brexit negotiations which are due to start shortly. However, in recent hours all four members of Theresa May’s social mobility team have announced their resignation.
The team which essentially looks for solutions to bridge the gaps in class and demographic differences in the UK have effectively walked out. The team resignation which has cited a lack of focus on UK issues due to resources being deployed on Brexit negotiations.
The head of the board, Alan Milburn, and ex-Labour cabinet minister confirmed his team resignation. Milburn speaking on the Andrew Marr BBC show said there was ‘Zero prospect’ of the UK government resolving the current UK mobility issues. Speaking Milburn stated:
I have little hope of the current Government making the progress I believe is necessary to bring about a fairer Britain.
Continuing Milburn said:
It seems unable to commit to the future of the commission as an independent body or to give due priority to the social mobility challenge facing our nation.
Following the development early last week GB pound rates gained strongly against a basket of currencies. Notably progressing against the US Dollar and Euro.
At the beginning of the week, GB Pound to US Dollar opened at 1.3328 but has rallied nicely against the Dollar touching 1.3540 during trading on Thursday, Surpassing a two-month high, GBP/USD within just 53bp of the GBP/USD year high of 1.3593. The pair closed Fridays trading at 1.3472.
It will be interesting to see how the GBP/USD fares this week. Both will surely face political downward pressure following this weekend’s headlines plus the Dollar faces its own challenges following Michael Flynn’s admission that Donald Trump approved a meeting with Russian officials during his political campaign, which has seen his odds of impeachment slashed significantly.
GB Pound also enjoyed healthy gains against the Euro rising from 1.1170 to hit a month high of 1.1379. However, with markets sentiment leaning toward a sell-off of the GBP/EUR expect rates to slip on Monday’s market open.