British pound and stocks trade flat after no-confidence vote
British pound and equity trading were muted a day after Prime Minister Theresa May survived a no-confidence vote as uncertainty over Brexit lingers.
The pound was up 0.2 per cent to $1.265 at 5.08pm UAE time on Thursday, after closing up 1.1 per cent to $1.262 the previous day. Mrs May fought off the challenge to her leadership on Wednesday by 200 members of parliament to 117.
“While this development removes an element of uncertainty at a time when Brexit talks are at such a critical stage, it certainly is a massive blow to May’s authority and this was reflected in the pound’s price action,” said Lukman Otunuga, research analyst at broker FXTM.
“With uncertainty over Brexit and what to expect next, weighing on the mind of many investors, the pound’s upside potential is limited,” he said.
The UK’s economy, aligned with the European Union for the past 46 years, faltered this year as uncertainty over the outcome of Brexit rattled markets, with the pound losing 15 per cent of its value against the US dollar since the referendum to leave the EU on June 23, 2016.
A weakened Mrs May arrived in Brussels on Thursday to seek the help of European leaders, even though the EU has explicitly said it would not go back to the negotiating table and provided maximum concessions to the UK in the deal the British premier had planned to put to her country’s parliamentarians on December 11.
“There will be a strong focus on Theresa May’s trip to Brussels and if she is able to gain concessions from the EU on the Brexit deal,” said Mr Otunuga. “If May’s trip ends in failure, this is likely to fuel uncertainty, consequently punishing the pound further.”
The FTSE 100 fell 0.1 per cent at 5.08pm UAE time, one day after gaining 1 per cent.
The prime minister vowed on the steps of 10 Downing Street after the vote that she would go back to Europe to bring up the issue of the backstop related to Ireland, which led to friction within her Conservative party and with her allies the Democratic Unionist party.
“While the good news is that a time-consuming leadership contest could be avoided, offering the possibility to go back and work on Brexit immediately, it remains questionable whether the vote really strengthened her back,” said David Meier, an economist at Julius Baer.
“The rebel Brexiteers will continue to torpedo the current Brexit withdrawal deal, and May has to seek changes to win back approval and bring it through the House of Commons.”
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.