Fear and loathing in Westminster
Last week saw some pretty bleak forecasts from the UK’s office for budget responsibility (OBR). The OBR said that UK borrowing would rise to £60 billion from £29.3bn. You can read the whole report here. However, at the same time there was a UK amendment at the end of last week preventing a no-deal Brexit being imposed on a frozen UK parliament. So, with a potential stop sign to a potential BOJO Brexit bonanza, where now for Brexit and the GBP?
GBP shorts are crowded
Sterling shorts are certainly looking crowded now. As of July 12 GBP shorts were the largest spec position of traders on the major currencies. GBP shorts are at 73K vs 64K These shorts increased further this week to 76K. The GBP remains in a strange position of having decent data, but it is constantly weighed down by Brexit Blues. Last week saw average earnings up to 3.4% m/m and Retail sales up 1.0% vs -0.3% expected. If the Brexit blues lift, via a Brexit resolution, there is a clear GBP buy with hundreds and hundreds of pips to the upside. But it is not there yet, as Brexit still drags on. However, will a change of players get some traction for a deal?
A change of guard, a change of approach?
With a set of new players now trying to agree a UK-EU deal there may be a compromise possible. UK PM hopeful, Boris Johnson, will be seen as a more aggressive negotiator, prepared to walk away from the EU’s table. And, as is obvious, the person walking away from the table is placed to get the best deal, especially when they are truly prepared to walk. My only uncertainty is that, yes Boris will walk, but will UK parliament allow him to? Will Boris, when faced with the prospect of walking actually be able to do it? It’s easier said than done. There was another move last week from the UK Parliament to prevent a No-deal Brexit. So, if BOJO is frustrated and an election is called what could Labour do?
Could a Labour government solve Brexit?
Labour are functionally a ‘remainer’ party now under Jeremy Corbyn who wants Briatin to stay in the EU. However, his remainer leanings have dis-enfranchised a huge number of leave labour voters. Jeremy Corbyn is increasingly being seen as an extreme socialist who is out of touch with UK politics. He is also at present desperately trying to fight off claims of anti-Semitism from his own party. However, his silence on the issue is leaving people with no-doubt that there is a problem here. A very nasty, insidious problem. Corbyn now may face a no-confidence vote from his own peers. There was an advert placed in the paper last week, signed by 60 labour peers, trying to shake Corbyn from allowing anti-semitism to grow within his own party. When you see your own party releasing a national advert like this below, you know there is a problem:
If there was a general election then I can’t see Labour generating a huge groundswell of support apart from those who want a socialist agenda. Not only do they have an extreme socialist agenda, face accusations of allowing anti-semitism to grown within the party, but they have also alienated the normal stalwart working class Labour vote. Where does that traditional labour voter now turn?. Never before has the working man lacked a spokesman in my living memory the way it lacks one now. I feel very sad for that voter right now, as they lack a political friend. If the average labour voter realised how detached Westminster has become from their day to day life then the sadness would be felt more keenly than it is now.
Nigel Farage and the Brexit Party
So, if Labour are in no place to sort out Brexit when they can’t even sort out racism with their own party, where are we? Well, don’t forget Nigel Farage. He is plain speaking, easy to understand and relatable. He is the only person who really has major support from the most leavers across the various UK parties. In fact it was his UKIP party that forced Britain’s membership of the EU onto the political agenda a few years back now. Without him, there would almost certainly have been no Brexit. So, if Boris is ultimately frustrated and hamstrung to act, and a general election is called I could see Farage getting in. He formed the Brexit Party in January 2019 in response to the present political gridlock. I mean the vote was for the UK to leave, so people are asking, ‘why haven’t we left’. The strength with Farage is that he will get us out of Europe in a jiffy. The weakness with Farage is that he has only one policy that connects – Brexit now. That is not usually enough to engage an electorate. However, in these times, with Brexit balls up after balls up, that will be enough. I could easily see the people saying, through the electorate, ‘all we want is for you to deliver Brexit’. All Farage would need to do would be to believe that this one policy will be enough and make no apology for having one policy. If you have even seen Farage speaking in the European Parliament you will know that he wouldn’t even bat an eyelid at telling the EU that Britain’s off. It is quite addictive to watch Farage in action in the European Parliament. It is a bit like watching a car crash, it’s horrendous with the level of destruction , yet compelling. If Nigel Farage could fly under this single banner of ‘I’ll get you out of Europe’ (and make no apology for doing so) then all present attempts to thwart Brexit will simply harden leavers resolve. Every new Parliamentary delay will only just find fresh punishment at the polls in a future general election and give Farage the firepower from the polls to have one last hurrah in Europe. The final Big Bang he has worked so tirelessly to achieve.
UK now faces potential polarisation
On face value the chances of a no-deal Brexit are less now, this is true. Maybe the EU will make some concessions. Maybe Boris will unite a Parliament to deliver Brexit. However, if the conservatives can’t deliver Brexit we open the door to a huge political shift. In a struggling global economy it is only natural that nationalism rises. We have seen defensive trade deals, nationalism across Russia, China and the US. The rise of right wing parties in Europe were seen in the last European elections, albeit less than people feared. So, the chances of a no-deal Brexit may be less, but the chances of a more polarised UK, and by implication a more radical Brexit exit , have increased. Risk for the GBP remains elevated and many will still prefer to sell GBP rallies than to ride out the present political uncertainties.