Image © Bundesministerium für Europa, Integration und Äußeres
- ‘No-Deal’ a negotiating tactic says asset manager
- Parliament tipped to prevent 'no deal' Brexit
- Trump could offer UK 'sweetheart' trade deal
The possibility of a 'no deal' Brexit is likely to stay on the table for the next 3-months, says Richard Harris, the CEO of Port Shelter Investment Management, and the inference is that this will likely keep Sterling pressured over that period.
The government is playing something of a ‘game of chicken’ with the EU and needs to keep the nuclear option of a ‘no-deal’ on the table as a negotiating tactic, says Harris, who established Port Shelter as a consulting investment management firm in 2008.
“It is very complex, but on Johnson’s side and the kind of tac they are taking, we have to have no-deal on the table because that really is part of the negotiation,” says Harris in an interview with CNBC news. “I think it is quite clear over the next 3 months that the government is going to be talking ‘no-deal’ right the way through, even though there are major complications to it actually happening.”
The renewed fear of a ‘no-deal’ Brexit has sent the Pound lower ever since Boris Johnson took over as prime minister and promised a Brexit on October 31 “come what may”.
The Pound-to-Euro exchange rate was at 1.1200 on July 23 when Johnson assumed power; it is currently trading at 1.0820.
The Pound-to-Dollar exchange rate was in the 1.24s but the pair is currently trading at 1.2150.
By keeping a 'no deal' on the table it is likely the Johnson administration snuff out the oxygen required for any sustainable recoveries in Sterling over the coming 85 days and many foreign exchange strategists continue to see any strength as opportunities to load up on fresh bets against the UK currency.
The chances of a 'no deal' happening are “actually quite high” says Harris, but there are some important provisos to acknowledge.
The first being Parliament does not want a ‘no-deal’ and since Parliament is sovereign the Prime Minister is unlikely to actually be able to execute it should he want to.
It also makes preserving of 'no deal' as a possibility up until the deadline difficult, since as the deadline approaches, Parliament will increasingly try to have it eliminated.
The Parliament vs. Prime Minister debate is raging at present, and we caution readers the view Johnson is powerless to stop 'no deal' is disputed by constitutional experts who say Johnson simply has to do nothing if he wanted to deliver Brexit on October 31 without a deal being in place. Only the executive can request an extension to the Article 50 process, and Parliament cannot force the executive to do so.
Furthermore, even were he to lose a confidence vote, he would not necessarily have to resign before Brexit happened.
Boris Johnson only has a majority of 1 MP making it very easy for the opposition to bring his government down via a vote of no-confidence if it wanted to prevent a 'no deal'.
There has been growing interest over recent days in the prospect of a government of national unity - one that crosses party lines - being formed with the sole purpose of preventing a 'no deal' exit on October 31.
Options therefore remain alive.
“Parliament is against a ‘no-deal’ and at the end of the day Parliament is sovereign so if they want to say there is no way we are having a no-deal Brexit there is not an awful lot Boris Johnson can do about it except have a general election,” says Harris.
Johnson and his team are inexperienced and ideological, says Harris, and questions how long they can cling to their ideals in the face of harsh realities.
“This is a man who has come to power, a little bit like Donald Trump, by basically criticising everybody else, and having rather a colourful background, which has encouraged people to vote for him,” says Harris. “Actually being in power is something quite different again. He has also surrounded himself with allies without an awful lot of experience, so it is also going to be interesting to see whether their political ideology is going to continue with the pressure of power because that sometimes happens and that sometimes doesn't.”
The news an envoy has been dispatched to the U.S. to start doing the groundwork for a new transatlantic partnership even before the UK has even left the EU, strongly suggests the UK sees opportunities in America.
“If Britain does leave either with or without a deal they will need some kind of trade deal with the U.S. It is quite clear that Trump is in favour of it. Whether it will lead to an increase in trade with the U.S. we will have to see, but it could well be that with the “special relationship” and the fact Trump is pretty well anti-Europe that he might give the UK a sweetheart deal and from that they may be able to leverage other deals,” says Harris.
Yet at the same time, any trade deals struck with other countries will be done so at a disadvantage compared to larger trading blocs such as the EU - a leading argument for staying in the EU put forward by 'remainers'.
“Let’s face it 50% of the country voted to remain - their argument is how do we really do trade deals if we are not part of one of the largest trading blocks in the world?” says Harris.
Time to move your money? Get 3-5% more currency than your bank would offer by using the services of foreign exchange specialists at RationalFX. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency. Find out more here.