Opinions Joost Derks
Will Brexit be reversed after all?
In the short term, the direction of the pound is mainly determined by the interest rate decision that the Bank of England (BoE) makes in early November. But in the longer term, political shifts may have more influence on the currency than economic developments.
Tension is slowly rising in the economic world towards the decision that the BoE will take on November 2. To control soaring inflation, interest rates across the Channel have shot up from almost 0% to more than 5% within two years. However, so far the desired effect has not been achieved. On Wednesday it was announced that British inflation in September amounted to 6,7%. Although this is slightly lower than in the spring, it is the same level as a month earlier. A day earlier it emerged that employees in the business community earn 8% more than a year earlier.
Please wait for two years
Under normal circumstances, the combination of persistently high inflation and strong wage growth would give rise to a further cooling of the economy. However, experience shows that it takes one and a half to two years before an interest rate increase really starts to have an impact on the economy. The effect of the measures taken by the BoE at the end of 2021 is only now being felt. There is therefore a good chance that Governor Andrew Bailey would prefer to wait and see how the economy develops in the coming months, rather than running the risk of sending the United Kingdom into a recession with unnecessary interest rate increases in the course of 2024. will undoubtedly be an important theme in the run-up to the House of Commons elections, which Prime Minister Rishi Sunak will call next year.
Political landslide
From the looks of it, a political landslide is coming. Sunak's Conservative Party will lose more than half of the seats, according to an Electoral Calculus poll. Opposition party Labor sees the number of seats more than double from 203 to 418. This gives the party of the relatively invisible Keir Starner an overnight majority in the House of Commons. The well-known gambling companies have not yet completely written off Sunak: anyone who takes a gamble on a conservative majority can earn five times their stake. There is an important Labor meeting in Liverpool next weekend. In recent days, some prominent party members have already tried to find support for a motion to enter into negotiations with the EU about relaxing personal and trade movements.
Closer together again after a divorce battle
However, there is a good chance that the party would rather not touch this sensitive subject in the run-up to the elections. But the German Minister of Finance also called on the United Kingdom in an interview with the BBC this week to come and discuss an improvement in Brexit agreements. Not everyone is happy about the prospect of the Brexit deal being high on the political agenda again. Currency traders will remember with horror the chaotic time when the United Kingdom broke away from the EU. But it would be a good thing for both the British economy and the pound if both parties came closer together in the future.
Joost Derks
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