OP 2019: Prime Minister Corbyn sends GBPUSD to parity

Kay Van-Petersen

Global Macro Strategist

Summary:  Two years of agonised Brexit debate sees a staunchly leftist Corbyn government sweep into power and impose old-school policies that cut the ground from under the British pound.

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After serving in the most challenging and thankless prime ministerial role since
Winston Churchill, Theresa “The Cat” May finally runs out of her proverbial nine lives
and her Frankenstein of a Brexit deal is dead on arrival in the UK parliament as the
March 29 Brexit deadline rolls into view.

This forces a delay of the Article 50 expiration date and snap UK elections. The
Conservative party splits down the middle over Brexit with a third of their number
mounting a doomed charge of the “Sovereignty or Death” brigade. Labour sweeps to
a resounding victory and names Jeremy Corbyn as prime minister on the promise of
comprehensive progressive reform and a second referendum on a “ to-be defined”
Brexit deal.

With a popular mandate and strong majority in Parliament, the Corbyn Labour
government embarks on a mid-20th century-style socialist scorched earth campaign
to even out the UK’s gross inequalities. New tax revenue streams are tapped into as
Corbyn brings the UK’s first steeply progressive property tax in to being to soak the
wealthy and demands the Bank of England help finance a new “People’s quantitative
easing”, or universal basic income.

Utilities and the rail networks are re-nationalised and fiscal expansion sees deficits
yawn wider to the tune of 5% of GDP. Inflation rises steeply, business investment
languishes, and non-domiciled foreign residents run for cover, taking their vast wealth
with them.

Sterling is crushed on the double trouble of ugly twin deficits and lack of business
investment on the still-unresolved Brexit issue. Cable goes from the 1.30 area where
it spent most of the second half of 2018 and all the way down to parity at 1.00, a
move of over 20% - with one dollar being equal to one pound for the first time ever.

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