UK: Stark political choices? – Rabobank

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According to Jane Foley, senior FX strategist at Rabobank, for the UK economy, the race of the Tory party leadership begun in earnest on Monday and today has brought the official launch of the campaign of the favourite Boris Johnson.

Key Quotes

“It will be the job of Tory MPs to whittle down the number of candidates from 10 to 2 over the next few weeks before the final decision is made by members of the Conservative party around the country.  If Johnson’s name is on the ballot sheet when the party members cast their votes next month, opinion polls suggest he is set to be the winner.”

“This would buy a reprieve for the pound, though the extent for any relief rally in GBP over the coming months will be limited if a decision on Brexit is merely kicked down the road.”

“The Labour party is today expected to table a motion which, if passed, would give MPs control of the parliamentary agenda on June 25. The motion could reportedly be used to allow MPs to start building legislation which could prevent a ‘no deal’ Brexit.”

“The job of the next UK PM will be hugely complicated by the fear that not delivering Brexit on Oct 31 could irrevocably cripple support for an already weakened Conservative Party.”

“The new PM will be constrained by the limited room offered by parliament. Not only is it expected to attempt to block a no deal Brexit but it has failed to pass PM May’s Brexit deal three times.”

“It is our central view that the PM will have little option but to agree a Brexit extension beyond the October 31 deadline. If this meant that a no deal Brexit was off the table for this year, there would likely be a relief rally in the pound. However, given the cost of uncertainty both to the reputation of the government and to the economy, any relief rally is likely to be fairly subdued.”

“Our central view is that EUR/GBP can trade lower at the 0.87 area on a 3 month view on the assumption that the new PM is working to avoid a no deal scenario, but clearly GBP is set to remain sensitive to political developments.”

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