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26brexitM

Macro Digest: The Brexit deal that keeps on giving

Macro
Picture of Steen Jakobsen
Steen Jakobsen

Chief Investment Officer

Summary:  The European Union quickly agreed to UK Prime Minister May's Brexit deal, but her true challenge remains getting it through Parliament. Labour have voiced their opposition to the deal, as has the DUP.

Click here for the full text of “Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union and the European Atomic Energy Community as endorsed by leaders at a special meeting of the European Council on 25 November 2018”.
Brexit deal
Source: Bloomberg
Our analysis

This was the "easy part" of the Brexit deal – agreeing with a desperate European Union. The vote is unlikely to carry in the UK Parliament, which is setting up additional nervousness and volatility; Prime Minister May is looking to get a parliamentary vote by Christmas.

We remain seriously concerned about the UK economy. Our Credit Impulse reading for the country has collapsed to unheard-of lows, suggesting that the UK economy could be recession-driven by the summer of 2019.
Credit impulse, consumer confidence, and new car registrations
We forecast the vote to be a loss for PM May (with probability at 70%). Any rally in GBP should be sold (critical cable support sits at 1.2660), as the UK parliamentary system is working its way towards a non-solution and as such risks a handover of control in Parliament despite the lack of any real alternative. The ultimate price could be a split of the Conservative party before 2019 is over.
GBPUSD
GBPUSD, source: Saxo Bank
This morning saw EU officials wave goodbye to their stormy but memorable cross-Channel marriage. Following 20 months of acrimonious negotiations, the EU gave its OK after less than an hour of discussion.

The EU described it as a “orderly withdrawal”, and then immediately returned to its old, opposition-intimidating ways with EU Commission President Jean-Claude Juncker commenting that "...anyone in Britain who thought the bloc might offer improved terms if MPs rejected the deal would be 'disappointed'".

Reuters carried the British opposition response, which was no kinder:

"Britain’s main opposition Labour Party will oppose the government’s Brexit deal in parliament, its leader Jeremy Corbyn said on Sunday, describing the agreement approved in Brussels as “a miserable failure of negotiation”.

“This is a bad deal for the country. It is the result of a miserable failure of negotiation that leaves us with the worst of all worlds. It gives us less say over our future, and puts jobs and living standards at risk,” Corbyn said in a statement.

“That is why Labour will oppose this deal in parliament. We will work with others to block a no deal outcome, and ensure that Labour’s alternative plan for a sensible deal to bring the country together is on the table.”

If the easy part for PM May was to make a deal with an EU desperate to close the talks, the focus is now on Parliament. Sunday saw the deal rejected by Labour (see above) as well as the 10 Democratic Unionist Party MPs that secure May's majority in Parliament.

UK media also insist that up to 90 lawmakers from her own Conservative party have said they will vote against the deal. 

In the face of all this, can May really expect a successful vote by Christmas? It appears unlikely.

More on Brexit from: The Financial Times, The Guardian, and The Economist.

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