Brexit: Wednesday Afternoon Update

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Posted on July 6, 2016

Story of the Day: Market Slides
As the Chilcot report on Iraq pushes Brexit off the front pages — more on this below — the pound as a key indicator of the market fell below $1.30 USD, its lowest point since 1985. Against the euro, it is trading at less than タ1.17 which is its lowest exchange rate since 2013. The assertion by Governor Mark Carney, now the only voice of economic leadership in what remains a political vacuum, that the risks of Brexit have begun to crystallize, has driven home the longer term repercussions for markets worldwide. The FTSE 100 is down over 1.5 per cent and the FTSE 250, a more accurate reflection of the domestic market in the UK, is down over one per cent. Markets across European trading centres including Paris, Frankfurt, and Madrid fell sharply as trading opened and, by market close, were unable to bounce back. The Asian markets of Japan and South Korea were in similar territory. The longer the broader political uncertainty goes on, the longer the markets are likely to be volatile.
As the markets tumble, the US yield on the benchmark 10-year Treasury bonds fell to a record low, indicating a substantial increase in demand. As global yields on bonds are decreasing and with gold reaching a two-year high it is evident that weary investors everywhere are pouring their money into safe investments.
Conservative Party
Yesterday’s leadership poll was predictably dominated by Theresa May with Andrea Leadsom and Michael Gove finishing in second and third place respectively. Liam Fox was defeated and next runner-up, Dr Stephen Crabb, has withdrawn and both have endorsed Theresa May. Leadsom and Gove, who both voted Leave, have emphasized the need for the next Prime Minister to be a Brexiter, while Theresa May argues that it is time to unite the opposing camps and move forward.
Interestingly, now that the contest has narrowed from five to three, Gove’s popularity appears to be on the rise. This is leading to rumours of an anti-Leadsom movement within caucus and the expectation of a Gove versus May leadership contest to be decided by members of the Conservative Party.
Labour Party
Despite and perhaps because of the internal leadership battle that continues to rage within the Labour Party, Labour’s membership has grown by 100,000 in the 13 days since the referendum. It is thought that this new faction has joined the Jeremy Corbyn camp, solidifying his claim that, while Labour MPs may try to oust him as Leader, he maintains the critical support of trade unions and grassroots members. It should not be forgotten that last September Corbyn won a landslide victory, obtaining 59.5 per cent of Labour supporters’ votes, while his next closest competitor managed only 19 per cent.
It is evident that formally opposing Corbyn in a party election should now be the last resort as it will be difficult to sway grassroots voters to vote for anyone but Corbyn. Alternative prospects, however, are not unravelling favourably for Deputy Leader Tom Watson and the agitated Labour Parliamentary Party. If a leadership election is initiated and Corbyn is re-elected, we may well see a split in the Labour Party itself.
Chilcot Report
Nearly seven years and over ᆪ10 million later, the Chilcot report has largely reiterated what we already knew about the Iraq War. The report concluded that military intervention in Iraq was not a last resort, and that the perceived security threat of Iraq building weapons of mass destruction (WMDs) was not justifiable. It also asserts that not only was Saddam Hussein not an imminent threat to the UK, but that planning for a post-Saddam Iraq was wholly inadequate at best and non-existent at worst.
This is really the story of the day and will have given a resolute Tony Blair an opportunity to again state his case and for Jeremy Corbyn to again criticize the former PM and the Labour Government he led. Last year, as Corbyn readied to campaign for his current position atop the Labour Party, he referred to the conflict as an ‘illegal war’ and indicated that British leadership, notably Blair, should stand trial for war crimes. It remains to be seen whether he will again call for Blair’s head.

For his part, an emotional and worn out Tony Blair faced the media in an uninterrupted marathon. He knew this was coming and continues to defend what he believes is defensible, i.e. the need to go to war with Iraq, and to express how he has felt over the years since he took the decision. He refused to apologize for his decision, leaving the door open for Corbyn to apologize on behalf of Labour in Parliament – which Corbyn did without triumphalism.

Former Prime Minister Blair’s decision was, in our view, one of the seeds of how the UK arrived at Brexit. The Iraq war was an early example of the developing gulf between the UK public and the elite establishment in Parliament. This, when coupled with other issues including Tory scandal, Labour spin, the handling of the 2008 financial crash, the UK parliamentary expenses affair, and of course, how both the Leave and Remain blocs ran their campaigns, may help to clarify why public trust in politicians is, at best, waning.
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