Brexit: Weekly Update

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Posted on August 23, 2016

Conservative Party
The clash of personalities continues between two of Prime Minister Theresa May’s Brexit Ministers, Boris Johnson and Liam Fox. Although an ‘unimpressed’ PM May ordered her ministers to get back to work more than a week ago, Liam Fox is still fighting to reallocate the ever-important responsibilities of economic diplomacy from Johnson’s Foreign office to his newly established Department for International Trade.
Fox, who is closest of the three Brexit Ministers (the third being David Davis) to May, certainly appears to be stretching the Prime Minister’s patience in order to increase his prestige. Johnson appears to be responding in kind, with an unnamed source from the Johnson camp launching a personal attack on Fox in recent days. May has been on holiday abroad for the duration of the dispute.
Labour Party
Mayor of London, Sadiq Khan, has publicly endorsed Owen Smith as the next Leader of the Parliamentary Labour Party. Since the internal party struggle began in the wake of the Brexit referendum, Khan had remained neutral, but has now come forward and slammed Jeremy Corbyn. Khan believes Corbyn ‘failed to win the trust and respect of the British people’, characterizing him as unelectable and as ineffective beyond his official opposition role. According to Khan, Corbyn completely failed at advocating to remain within the EU prior to the referendum and accordingly deserves much of the blame for the Brexit result. As a result, Khan claims Corbyn does not have the support of the British public or Labour MPs. Through his victory for the prominent role of Mayor of London, Khan secured the largest Labour victory against the Tories in over a decade, making his endorsement of Smith significant in Labour circles.
Labour MPs who oppose Jeremy Corbyn continue to plan for a potential party split should Corbyn retain the leadership. To do so, MPs are relying on a 1927 agreement between Labour and the Co-operative Party. The pact, and subsequent 1938 constitution, effectively allows Cooperative Party members to sit as Labour MPs and in practice means there are currently 25 Labour MPs who are members of the Co-operative Party.

Owen Smith supporters, who are generally on the moderate/centre-left of the Labour party, have begun drafting plans to enlist over 100 Labour MPs to the Co-operative Party and install their own whips to counter Corbyn’s hard-left policies. Part of their justification in doing so is that Corbyn operated in a similar constitutional capacity for approximately 30 years, voting against party leadership over 500 times.
The first round of long-awaited Brexit data was released late last week, sparking an unexpected boost of optimism to an otherwise dreary narrative. Following the referendum, retail sales in July unexpectedly soared nearly six per cent relative to July 2015 and increased 1.4 per cent on a month to month total. The figures challenged fears of decreasing consumer confidence and prompted the pound sterling to climb to its highest level in nearly a fortnight against the US dollar, before dipping and closing at $1.306. Against the Euro, it closed last week at タ1.153 and is today climbing towards タ1.16.
Last week the FTSE 100 tumbled 0.83 per cent, its first weekly decline in three weeks. This morning, the situation worsened as it fell beyond 0.5 per cent amid struggling mining and oil shares relative to a strengthening US dollar.

Banks and other financial services will begin to suffer as they try to resuscitate economic growth via radical reforms to financial stimulus. Markets are pricing a one in three chance that interest rates will be further reduced from their current 0.25 per cent before the year’s end. However, it should be noted that the Bank of England Governor, Mark Carney, has publicly ruled out negative interest rates.

In other news, the employment rate, the highest since records began, was reported at 74.5 per cent, while unemployment was reported at 4.9 per cent. The positive figures indicate that the UK will at least be enduring the upcoming economic storm from a position of strength.
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