Sunday 21 April 2019

UK 'fudge and delay' will help economy

 

UK Prime Minister Theresa May. Photo: REUTERS
UK Prime Minister Theresa May. Photo: REUTERS

David Chance

British Prime Minister Theresa May is set to go for 'third time lucky' on her Brexit deal in parliament, taking the pound on another roller coaster ride as expectations of a softer exit work to buoy the currency only to be wiped out by a snapback.

On Wednesday alone, as Westminster convulsed with another series of votes on Brexit that split both the Conservative and Labour parties, the pound traded in a range that peaked at 84.72 pence to the euro to a nadir of 86.43.

With less than two weeks until the March 29 deadline for an end to the process, talk of a "hard" or "soft" Brexit outcome is being replaced with "fudge and delay".

If Mrs May's deal fails again, then the stance of the UK government is to seek a short extension of up to three months. In this scenario, consultancy Capital Economics believes, the assumption grows the time will be used to agree a softer Brexit.

As a result, economic growth in the UK will rebound this year to the extent that the Bank of England will be pushed to raise interest rates three times next year. Cue a stronger sterling and for Irish agriculture and food exporters something that is very close to a continuation of the status quo, with the result that the economy does not dip sharply.

If there is a longer consultation period of a year or more, the consultancy believes firms that have put investment on hold would push ahead with them now, boosting the UK economy and boosting inflationary pressure that could swing the Bank of England into action even earlier.

That too would be a positive for firms here, some of whom may have delayed their own investment plans.

Irish Independent

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