Why UK econ­omy will share Theresa May’s pain

Business Daily (Kenya) - - EDITORIAL & OPINION - SWAHA PATTANAIK

is a Reuters Break­ingviews colum­nist

Theresa May’s mis­ery risks in­fect­ing the UK econ­omy. The Bri­tish Prime Min­is­ter faces grow­ing chal­lenges to her lead­er­ship from her Con­ser­va­tive party’s pro- and anti-euro­pean Union fac­tions. Po­lit­i­cal dis­ar­ray in­creases the risks that quit­ting the bloc will in­flict se­ri­ous harm on the econ­omy. A softer Brexit is be­com­ing harder to de­liver.

A clear sign that in­vestors are get­ting more ner­vous came on Mon­day when ster­ling shed a full cent against the US dol­lar, fall­ing below $1.31. The trig­ger was a Sun­day Times re­port that 40 Con­ser­va­tive deputies had agreed to sign a let­ter of no con­fi­dence in May – eight short of the num­ber needed to trig­ger a lead­er­ship con­test.

A sharp jump in op­tions prices that re­flect how much traders ex­pect the pound to gy­rate against the dol­lar in the next month un­der­scores the mar­ket jit­ters.

Fair enough. May is strug­gling to con­vince other EU coun­tries that Bri­tain has made enough com­pro­mises on Brexit is­sues they want re­solved be­fore mov­ing on to dis­cussing trade. Eject­ing her would re­quire the Con­ser­va­tives to spend weeks choos­ing a new leader.

A gen­eral elec­tion might have to be called to con­firm her re­place­ment’s man­date, pos­si­bly lead­ing to a change of gov­ern­ment. This would de­lay ne­go­ti­a­tions about trad­ing ar­range­ments to al­low con­tin­ued tar­iff-free move­ment of goods be­tween Bri­tain and the rest of the EU.

It would also make it harder to se­cure a tran­si­tion pe­riod that would de­lay the im­pact of the new ar­range­ments be­yond the March 2019 Brexit date.

The longer the clock ticks with­out tan­gi­ble progress on trad­ing terms and con­di­tions, the more likely busi­nesses are to move jobs and in­vest­ment out of the United Kingdom. In­vestors’ pa­tience will run out even sooner.

They have so far as­sumed that the prime con­cern of Bri­tish politi­cians is to min­imise eco­nomic dam­age: the Break­ingviews Brexit in­di­ca­tor, which in­cor­po­rates sig­nals from cur­rency, bond, stock, and credit de­fault swap prices, has been rel­a­tively stable in re­cent months.

The more that May suf­fers, the more that mar­kets will an­tic­i­pate last­ing eco­nomic pain.

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