Pound rises from 20-month low after May’s defiance of no-confidence vote
The British pound and stock markets rose yesterday after Prime Minister Theresa May said she would contest a no-confidence vote in the UK Parliament.
The pound rose 0.78 per cent to $1.2584 (Dh4.62) at 4.56pm UAE time recovering from a 20-month low it had touched after Conservative member of parliament Graham Brady said a no-confidence vote would be held yesterday between 6pm and 8pm UK time.
“The development while not entirely unexpected delivers another negative blow for the pound and will raise Brexit uncertainty to another level,” said Lee Hardman, a currency analyst at Japanese lender, MUFG.
The FTSE 100 index increased 1.2 per cent at 4.56pm UAE time, while news of the no-confidence vote spiked the cost of insuring UK government debt against default, with credit default swaps rising to their highest level since the June 2016 referendum on leaving the European Union.
Five-year UK credit default swaps rose 40 basis points, up from 31 basis point at the start of December, according to data from Markit.
“A change in leadership at this late stage in the Brexit process will have significant ramifications, potentially delaying or even stopping the country’s departure from the EU,” said Mihir Kapadia,
chief executive of Sun Global Investments. “With the prospect of an orderly Brexit looking increasingly in question, the markets may be bracing themselves for further uncertainty for the remainder of the year.”
The UK’s economy, aligned with the EU for the past 46 years, faltered this year as uncertainty over the outcome of Brexit rattled markets, with the pound losing 16 per cent of its value against the US dollar since June 23, 2016.
“If Theresa May gets defeated, the prospect of a no deal Brexit from the European Union increases and this could push the UK into economic chaos,” said Vijay Valecha, chief market analyst, Century Financial Brokers.
A no-deal Brexit could lead to gross domestic product falling by as much as 8 per cent over five years as well as raise the unemployment rate to 7.5 per cent from 4.1 per cent, according to the Bank of England.