Brexit: Weekly Update

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Posted on August 3, 2016

Conservative Party
Theresa May and her Conservative Party are reaping the rewards of facing a completely dysfunctional opposition. A new opinion poll shows that the Tories have extended their lead by 16 points over Labour, which would stretch their majority in a theoretical election from 12 seats to 100.
May is a pillar of stability, relative to an otherwise chaotic Westminster, and as such, she has begun attracting voters from all sides of the political spectrum. Although Jeremy Corbyn has amassed a massive following among grassroots voters, the Conservative Party has already begun drawing in the disaffected soft-left camp of Labour supporters. A recent poll indicates that nearly one third of Labour supporters who voted in 2015 would prefer to see Theresa May as Prime Minister than Jeremy Corbyn.
Meanwhile, on the other side of the political spectrum, one in five who voted for UKIP’s Nigel Farage are now willing to back May’s Tories. This can be explained in part by her appointment of prominent Eurosceptics to key cabinet posts (namely Boris Johnson, Liam Fox, and David Davis). Furthermore, the decline of UKIP, who achieved their raison d”tre with the success of Brexit, will potentially see a leak of their support to the Conservative Party.
Rumours of a ‘soft Brexit’ that does not entirely sever the UK from EU, have continued to swirl. As staunchly stated by a chorus of European officials, access to the single market is not viable unless the four freedoms of the EU are accepted. Chief among those is the freedom of movement, which was the root of much of the UK’s anti-Brexit sentiment. The negotiators on the UK side of the Channel will be testing the waters, particularly of the electorate, to see just how much they are able to get away with. The question to come is to what extent will the outcome of Brexit align with what was actually voted for?
Labour Party
A High Court judge has ruled that Jeremy Corbyn’s automatic right to the ballot within the party leadership contest is ‘correct in law’. With the legal formalities put to rest, it is widely anticipated that Corbyn will win the leadership race. With the war drums beating, look for a defeated Owen Smith to lead the split of the Labour Party toward the Liberal Democrats and the centre-left.
Evidently, the manifest wounds within the Labour Party will not begin to heal anytime soon. The infighting within the Party has sunken its popularity ratings among public opinion to the lowest since October 2009, according to a recent poll.
The intimidation also continues toward those who oppose Corbyn. While certainly not supported by the Labour leader himself, many of the scare tactics are thought to be derived from his hard-left supporters who partially constitute his monumental grassroots movement ‘Momentum’ and directed at Labour MPs who oppose Corbyn, particularly Angela Eagle and Jess Phillips.
Parliament is now in recess as parties enjoy their short summer break.
The Markets
The FTSE 100 climbed this week toward a 52-week high before tumbling as news emerged of a shrinking UK construction sector this morning. The FTSE 250, which had fallen 14 per cent following the referendum, has experienced an uptick approaching its pre-Brexit levels. Although the FTSE 250 is a more accurate barometer of the domestic market than the FTSE 100, approximately half of the companies on the index earn revenue outside the UK. Therefore, what may appear to be domestic stability has been, to some degree, inflated by external out-performers, and not by the domestic house builders, retailers, or banks, which have been propelled by the price of the pound. Part of this week’s upswing came from reports that indicated the UK was at least facing this uncertainty from a position of strength. The UK economy grew 0.6 per cent up until the end of June, while GDP grew an unexpected 0.4 per cent since last quarter.
The pound sterling is still down roughly 12 per cent against the US dollar but seems to be coping with the news of shrinking UK construction and staying above $1.32.
Markets have predicted a 97 per cent chance that the Bank of England will cut interest rates to 0.25 this month as UK business activity is at its lowest levels since 2009. However, given this morning’s report on dwindling construction, the Bank of England may hold off on doing so. Markets are pricing a 30 per cent probability that that interest rates will be cut to zero by year’s end.
UK-EU Relations
European Commission President Jean-Claude Juncker has begun to set the tone vis-‘-vis negotiations. Juncker, who this week admitted to keeping a little black book of names of people who have betrayed him over the last thirty years, appointed former French Minister Michel Barnier to lead negotiations on behalf of the EU. Barnier’s career background extends among the French Government, European Parliament, and the European Commission. He is perhaps better known by financiers in London as the immensely unpopular ‘scourge of the City’ for leading banking reforms that were met by opposition in the UK. He is known as a tough negotiator and his appointment is largely viewed by British political editors as an action of an adversarial nature.
In other events, the UK has declined its Presidency of the European Council in 2017. The symbolic gesture may not have been the most forward-thinking manoeuvre as the UK will still be a Member State of the EU come 2017. The UK no longer has the luxury of steering the agenda toward pertinent issues than it otherwise would have had.
Scottish First Minister Nicola Sturgeon has outlined her five principles which, in her view, must be safeguarded in today’s political landscape. Two of them are intentionally problematic: 1) ‘economic interests’, which is Sturgeon’s implicit method of stating they are to remain within the EU, as she described it as ‘safeguarding free movement of labour, access to the single marketナ’; and 2) ‘having influence’ in the shaping of the EU’s single market. Evidently, Sturgeon’s vision does not mention Scotland having a seat at the Brexit negotiation table. An explanation may be that she is choosing to ignore the result of the referendum, which above all voted to extinguish the free movement of labour — a move she believes does not reflect the will of the Scottish people. Scottish Conservative finance spokesman Murdo Fraser offered another very cogent explanation: ‘Nicola Sturgeon talks about five tests — but the truth is there’s only ever one test for the SNP (Scottish National Party), and that’s separation. She is setting these up to fail to provide another flimsy excuse for a referendum.’
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