The EU and UK have reached a provisional agreement over Brexit but before anyone gets too excited or disappointed, there are big hurdles to overcome to get the draft deal approved on all sides first.
- U.K. Prime Minister Theresa May has to get her Cabinet of ministers and then a majority of parliament to approve the draft deal — or what has, in typical bureaucratic fashion, been called a “technical agreement” between the U.K. and EU.
- That’s not likely to happen smoothly with both sides of the political spectrum — both pro-EU members as well as Brexiteers — are expected to be unhappy with terms of the draft deal.
Mike Read, founder of social trading platform Pelican, commented on traders’ reactions to Theresa May’s draft Brexit deal:
While the key members of the cabinet may have reached an agreement last night, now comes the hard part. We haven’t seen trading confidence in the UK for a while, and if we want to see long positions in sterling opened again, we need to see an actual breakthrough in Brexit proceedings and signs of increased economic output.
Traders are currently focused on this week’s dismal UK earnings data, and while nominal pay may have risen by 3.2%, above-target inflation means that real pay has grown by only 0.9%. Paired with an unemployment rate edging up from 4% to 4.1%, further inflationary pressure on wages will continue as fears of worker shortages grow. None of which bodes well for the UK economy.
The Bank of England may soon be forced to raise rates ahead of schedule to rein in this inflation. With all this economic uncertainty and the hard part of Brexit still ahead, we might just have the perfect storm on the horizon. Until we see something more concrete from negotiations, traders will either steer clear or add to the momentum of those betting against the pound.