Brexit's silent killer

Prime Minister Boris Johnson has failed to sideline the British House of Commons. Instead, he threatens to get sidetracked in the Brexit soap. That is also very good news for the British pound.

What would you do if you had the choice to jump off a high cliff now, or in 3 months? Johnson can't wait to plunge into the abyss, while MP Hilary Benn prefers to delay the jump as long as possible. On Wednesday evening, September 4, it became clear that the majority of parliamentarians agreed with him. His motion was passed (329 votes to 300). The House of Lords quickly announced that it also supports this motion. If there are no new surprises, there will be a law before the weekend that obliges Johnson to travel to Brussels and request a postponement until January 31, 2020.

Humiliating trip to Brussels
For Johnson, this is a huge letdown. He campaigned this summer promising Britain will leave the European Union on October 31. Johnson would rather call new elections than make the humiliating trip to Brussels. However, this too was not granted to him. It is only possible to hold early elections if there is a majority in the House of Commons to do so. Opposition leader Jeremy Corbyn does not want to agree to a poll. First, he wants guarantees that Johnson cannot ensure that the country leaves clear agreements from the European Union through a back door.

The events of the last few days show that the game in the House of Commons is being played in the same way as it was before the summer period. The main difference is that several players have disappeared from the Brexit soap, while others have a new role. Instead of Theresa May, it is now Johnson who is sinking deeper into the political quagmire. His decline is welcomed enthusiastically on the currency markets. Since Johnson threatened to sideline the House of Commons in August, the pound has bounced Â4% against the euro as the risk of a chaotic Brexit diminishes.

Pound as Assassin
The exchange rate movements of the pound ensure that the British population is feeling the consequences of the Brexit soap every day. The country imports more than £600 billion worth of goods and services every year. Every time the pound falls by 1%, companies and consumers in the country are therefore spending billions more on imports: from machines and chocolate bars to flowers and fruit. Despite the recent rebound, the currency has lost about 4% of its value against other currencies within 20 years. The good news? Now that Brexit is being postponed again, a new slide of the pound seems to have been postponed for a while.

Joost Derks

Joost Derks is a currency specialist at iBanFirst. He has over twenty years of experience in the currency world. This column reflects his personal opinion and is not intended as professional (investment) advice.

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