There’s never a good time for a government to plunge into crisis. But the UK has managed to pick a particularly bad moment, in the midst of a global selloff in markets.
Today, British prime minister Theresa May pulled the plug on a vote in parliament to approve her Brexit deal scheduled for tomorrow evening. She was widely expected to lose the vote, but even so the decision to delay it was not taken well by traders. The pound fell even further when May told MPs she planned to meet EU leaders later this week to get additional “reassurance” on the thorniest aspects of the agreement. The EU has said it won’t renegotiate the deal.
Without a meaningful change to the withdrawal agreement, it’s difficult to imagine the vote passing parliament when a new date is set. Today’s delay has saved May an embarrassing defeat tomorrow, in favor of weeks, if not months, of further uncertainty. May didn’t say when the vote will now take place, and according to the House of Commons, taking questions on Twitter, the vote could technically be delayed until March 28, 2019. That is, until one day before the UK formally leaves the EU—cutting it rather close.
The political chaos has pushed the pound down to its lowest level in 18 months versus the dollar. ”We are at an absolute low of Brexit politics so it’s natural to see the pound at the lows once again,” said Jordan Rochester, a strategist at Nomura who has held onto the belief the pound will recover and agreement will be found. Today, he wrote in a note to clients: “Alas I can’t in good conscience find any reason to focus on silver linings.”
Meanwhile, there’s little in the markets to give UK assets much support. Market sentiment is decidedly wary, with traders busy worrying about a global slowdown in economic growth, tightening monetary policy, and a US-China trade war. Though December is typically a good month for stocks (paywall), the S&P 500 has fallen around 6% so far this month, amid high volatility.
American and Asian traders are shunning UK assets as the Brexit sideshow becomes too convoluted in the midst of global economic concerns, the Financial Times reported (paywall). An analyst at Columbia Threadneedle in New York told the paper that “worrying about Brexit is similar to rearranging deck chairs while the real Titanic is the US.”