The newly elected U.K. Prime Minister Boris Johnson puts up a Brexit countdown clock in his office in 10 Downing Street, symbolizing that he is ready for a big showdown with the Europeans on a more favorable Brexit deal. The question for Britain is, will the Europeans give the U.K. a better Brexit deal, or will Boris Johnson capitulate, or will the U.K. be driven to a forced hard Brexit?
With less than 100 days to go before the country is set to leave the EU bloc, the BOE’s (Bank of England) nine-member Monetary Policy Committee (MPC), led by Mark Carney, unanimously voted to hold interest rates at 0.75%. The central bank also cut its growth forecasts for the U.K. economy, amid worries about Brexit and a slowing global economy. The BOE, which assumes Britain will avoid a Brexit shock, said it now expects to see the growth of 1.3% both this year and next, down from 1.5% and 1.6% respectively in its May forecast. A rather dismal forecast.
U.K. Chancellor Sajid Javid announced on Wednesday that the government would double Brexit funding for this year to prepare for no-deal – €2.3bn for no-deal Brexit preparation. All this recent news has sent the British Pound Sterling to near new lows against the Dollar, that has not been seen for decades. The British currency has often been thought of as a proxy for how Brexit is doing. Will the British currency break and make new lows? It will largely depend on how the outcome of Brexit goes. Any reasonable resolution to Brexit will cause a massive rally in the currency. If Brexit becomes chaotic, the currency could break to new lows and become a disaster for the U.K.
History tells us that the hard reality of markets tends to slap a little sense into the faces of politicians at the end of the day. When Boris Johnson stares into the abyss of the scary declining market he might start to think differently about his brashness. News Forecasters believes that when push comes to shove, Boris Johnson will cut a deal with the EU, though perhaps marginally better than his predecessor. Some will call it Brexit medium-light but, Boris Johnson will be able to raise his hands and declared victory.