UK set for Brexit Extension (Daniel Johnson)

Article 50 Extension

The UK PM continues to insist the UK can leave the European Union with a decent deal, but as we have seen from the recent votes a deal seems to be a long way off. May’s deal failed to go through parliament, her deal being rejected by a total of 149 votes .

Yesterday evening the House of Commons confirmed that they will voting against a no deal scenario and it seems that we are now destined for an extension to Article 50. This evening MPs will vote on whether or not there should be an extension and May will then head to Brussels to request  permission from Brussels.

At present there is the risk that Brexit will not be concluded in the near future and May is suggesting that if her deal is not agreed that an extension could last for the foreseeable.

The good news is that a no deal is currently off the table  and this could give Sterling support near term and why we have seen gains for Sterling overnight. The Pound actually hit a new high of 1.1805 against the Euro, the best rates since May 2017.

I think there is potential for further gains after tonight’s vote although the outcome is largely already factored into current levels.

The Euro could be in for a rough ride. The bloc’s third largest economy, Italy has just entered recession and it’s debt is second only to Greece. Germany, the engine room of the bloc has only recently narrowly avoided recession.

Eurozone growth forecasts have substantially reduced and the  European Central Bank (ECB) has also recently ceased utilising Quantitative Easing (QE).

QE is essentially pumping money into an economy in order to stimulate growth. At one point monthly increments were as much as €80mn.  The Eurozone economy has clearly not coped well since they stopped QE and Mario Draghi the President of the ECB has now stated that loans will now be taken out in order to pump more money into the economy. This does not bode well for the Euro although Brexit will continue to be the key driver on GBP/EUR until we have clarity on the situation.

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