Brexit: Thursday Afternoon Update

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Posted on July 14, 2016

Story of the Day: New Cabinet
You’d be hard pressed to find another politician who has experienced the roller coaster that Boris Johnson has over the past three weeks. His leadership of the Brexit movement culminated in his surprise appointment by Theresa May as Foreign Secretary, with fellow Brexiters, Andrea Leadsom (Environment), David Davis (Brexit) and Liam Fox (International Trade) all making their way into cabinet as well. Meanwhile, Cameron’s closest allies known as the ‘Notting Hill Set’ including George Osborne, Michael Gove, and Nicky Morgan have all been replaced. As no election separates the two, this can be seen as May distancing herself from the Cameron government and his inner circle, as well as her co-opting Boris and the rest of the Brexiters to keep her Eurosceptic colleagues in line. This faction of the Conservative Party will continue to snipe and threaten May’s narrow majority in Parliament but by appointing Fox, Davis, Johnson and Leadsom it will keep pressure on them to deliver during the Brexit negotiations.
Appointing Johnson in such a diplomatic role certainly comes with its risks. His reception across Europe has not been warm, particularly from his French counterpart. On the other hand, many see it as a bold decision. It should be noted that, although a player, Brexit has been taken from the Foreign Office along with some work on Foreign Trade which leaves a smaller operation than he would have perhaps expected.

Vote Remain proponent Amber Rudd will be assuming May’s former position as Home Secretary. Liz Truss will be replacing Michael Gove in the difficult position of Justice Secretary. Gove supporters view him as an astute reformer and consider his termination a mistake. As such, Truss will have impressive shoes to fill. Rudd and Truss will be working at the heart of law and order and while they are viewed as highly-competent decision-makers, they are also viewed in those circles as outsiders.
In other appointments: former Foreign Secretary, Phillip Hammond replaces George Osborne as Chancellor of the Exchequer and Justine Greening will replace Nicky Morgan as Education Secretary. Baroness Natalie Evans becomes the new leader of the House of Lords while Gavin Williamson is to become the new Chief Whip.

In May’s first address to the nation as PM, she focused on the notion of a ‘one nation’ government that is driven by the interests of everyday working people. May’s appointments illustrate her government’s effort to maintain credibility and show solidarity to voters from both the Remain and Leave camps.

But through all this, May must now:

  • Keep her party together through very uncertain times;
  • Keep the United Kingdom together by reassuring Scotland, Northern Ireland, and Wales;
  • Begin to strategize the UK’s negotiating position; and
  • Otherwise run the country, which means tough decisions coming up in the next few months, including replacing the UK’s nuclear deterrent, HS2 Train link, Heathrow expansion etc.

Labour Party
Labour’s National Executive Committee (NEC) today ruled on further voting restrictions amid Jeremy Corbyn’s victorious effort to secure his automatic right to appear on the party’s ballot. What has been deemed a ‘membership freeze’ bars members of unions and other affiliated groups from voting in the Labour election if they joined later than 12 January 2016. If individuals do not meet the six-month membership criteria, they too will now have to pay the ᆪ25 registration fee and become an official Labour member to vote for party leadership. This was undertaken to close the loophole of Labour supporters circumventing the fee by voting as an affiliate. Nearly half of Labour voters, which now number well over 500,000, are affiliates and unionists, from whose ranks Jeremy Corbyn receives an overwhelming amount of support. While Corbyn supporters are no less likely to pay the ᆪ25 than those who oppose Corbyn it has for the first time sparked the conversation that Corbyn is not invincible.
One of Labour’s largest donors Michael Foster has announced that he will challenge in court the NEC’s decision regarding Corbyn’s automatic right to appear on the leadership ballot. He cited his fear of manipulation of the process by Corbyn and argued the rules cannot be bent at any one time to suit Corbyn. The case will appear in front of the courts within days. Meanwhile, Deputy Leader Tom Watson says the challenge is unhelpful and further destabilizes the party (if that is even possible).
Markets
It was overwhelmingly anticipated by economists that the Bank of England (BoE) was to slash interest rates today. However, in a surprising verdict the bank voted 8-1 against reduction, maintaining the 0.5 per cent rate. The vetoing of reduction illustrates recognition that the BoE does not have to resort to desperate measures as the economy and markets have not collapsed. In other words, it may be bleak but not desperate. They again meet in three weeks so watch this space.
In response to the BoE’s verdict the pound sterling surged up two per cent to a two-week high. As the day progressed the pound steadied at around $1.3374 up roughly 1.7 per cent. The pound is predicted to be up three per cent against the US dollar this week, marking its best performance since 2009; quite a different story than its 31-year low last week. Against the Euro, the pound spiked and later levelled off, being up roughly 1.2 per cent on the day. The Euro also responded favourably to the BoE’s verdict up 0.7 per cent, hitting a nine-day high.

The FTSE 100 did not respond particularly well to today’s decision, closing down at 0.24 per cent. The FTSE 250 closed the day up 0.22 per cent. Germany’s DAX and France’s CAC 40 each experienced strong days.
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To speak to someone on the ground in London, connect directly with our London lead Ashley Prime at aprime@navltd.com.

Navigator's Brexit Response Team

If you have any questions on the implications of Brexit and its implications for your organization, please reach out to Navigator's Brexit Response Team.

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