Market news | 5 July, 2017

Brexit’s uncertain future

Raúl Benito Business Development

The latest elections held in the United Kingdom on 8 June last have revealed a scenario of political uncertainty in the country, aggravated by recent outbreaks of social unrest suffered in Manchester and London, which have weakened Britain’s interests in its political aspirations vis-à-vis the negotiation of the future of the Brexit with the European Union.

Theresa May, who called early elections in an attempt to enhance her position in the more conservative wing of her party and thus overcome the eventual agreements with the Union on the more sensitive topics, has been forced to reach an agreement with the Northern-Irish unionists in exchange for £1,000 million. This decision has produced ill-feeling among traditional regional leaders like Carwyn Jones, Head of the Welsh government and usual ally of the English, raising vital issues like the breach of the ideal of fair and equitable financing between the different nations making up the United Kingdom, as well as doubts as to where the funds to finance the agreement will come from.

Likewise, the agreement with this ultra-conservative party has generated ill-feeling in the very heart of the conservative party itself, and endangers the always delicate status of the “Good Friday Agreement” of 1998 between Republicans and Loyalists, vital for peace to survive in the hard hit Irish province of Ulster. The conclusion, Theresa May is in a weaker position and criticism is flying in from all flanks. Firstly from her own party, which now doubts her capacity to head a block to defend British interests against Europe’s, and secondly from the opposition, whose leaders are clamouring both for her resignation and for a soft negotiation that will leave the country closer to the customs union.

The British have come to the negotiating table, which began on 19 June last at the seat of the European Commission in Brussels, a priori with a very bad hand.

The negotiators are Michel Barnier (French) for the EU, who will receive the Secretary of State David Davis, representing the UK. The process consists of three keys blocks: The future of European expats in the United Kingdom and the British in the European Union; the future of the Irish border; and the financial regulations that should govern relations between London and the EU.

The economic situation, although seeming to point to a certain improvement, in actual fact paints another picture. To date economic growth is stalling (0.2%) and inflation has risen (2.9% from 1.6% in June 2017, largely due to devaluation of the pound.

We shall follow closely the macroeconomic and political developments in this process which is key for the future of Europe and of the United Kingdom.