Pound volatile after delay to vote on PM's Brexit deal

21 October 2019, 06:12 | Updated: 21 October 2019, 20:56

The pound made tentative strides on Monday as financial markets reacted to the fallout from Saturday's events in parliament that saw MPs demand a further Brexit delay.

The decision, by the government, not to contest a vote on Prime Minister Boris Johnson's Withdrawal Agreement in the wake of the amendment, initially saw sterling give up some of its gains of the past week.

Then, the currency clawed back 5% of its value against the greenback as investors saw a marked reduction in the likelihood of a no-deal Brexit on 31 October - given the PM's progress in Brussels. UK-focused shares also recovered some lost ground.

However, the pound slipped from $1.2971 - a five month high - at Monday's open in Asia to as low as $1.2875.

It also fell by more than half a cent against the euro to €1.1558.

Sterling later traded up on the day - back above $1.30 and €1.16 as evidence mounted, for investors at least, that a no-deal Brexit scenario was becoming less likely.

The Commons Speaker John Bercow refused the government the opportunity to hold a so-called meaningful vote on Monday, saying that no circumstances had changed since the vote on Saturday.

The FTSE 100 dipped in reaction to the news, bouncing back soon after, to close the day up 13.07 points at 7,163.64.

The index had opened positively - with banking and housing stocks leading the way. It was 0.3% higher at 7172 in early deals but the gains petered out as the pound's value recovered.

Following the defeat on Saturday, the government introduced its Withdrawal Agreement Bill to parliament on Monday night.

Downing Street is confident that the Bill will have enough support but it is vulnerable to amendments as rebel MPs and opposition parties fight for a delay.

Ipek Ozkardeskaya, senior market analyst at London Capital Group, said of the early deals: "So far, pound traders are content that a disorderly Brexit will likely be avoided... yet an early general election and maybe another Brexit referendum are on the UK's political agenda for the coming months.

"Therefore, cable could give back its recent gains along with the fading hopes of an imminent Brexit agreement."

In a note to clients, analysts at RBC Capital Markets said: "We think the uncertainty at present will prevent larger market moves, particularly as it appears now even more likely that the government can push the actual deal through the House of Commons.

"In either case, a near-term 'no deal Brexit' seems very unlikely indeed and thus the current uncertainty is unlikely to be interpreted by markets in the same way as before (GBP weaker and Short Sterling contracts higher)."

While financial markets hold the view that a no-deal scenario is, at present, unlikely, business groups expressed nerves that such a prospect had not yet been taken off the table.

Adam Marshall, director-general of the British Chambers of Commerce said: "While the parliamentary drama continues, in the real world businesses wait anxiously for a clear outcome.

"In the coming days the onus is on the government to answer the many questions businesses are posing on the Prime Minister's deal - and its potential impact on trade, investment, communities and jobs.

"At such a critical moment in the process, the government must give business an iron-clad guarantee that it will not seek to take the UK out of the EU without a deal on 31st October.

"Getting a Brexit deal is far more important than simply getting it done.

"Allowing the UK to slide toward a Halloween no-deal - whether by design or disarray - would be an act of economic and political negligence.

"As frustrating as it would be to many in business, a short extension to unlock a comprehensive solution and a smooth transition is still infinitely preferable to an overnight economic shock."

The Institute of Directors reported that a poll of its members showed support for Mr Johnson's deal - with 55% of those questioned backing it.

However, his demand that the UK leave without a deal, if necessary, on Halloween was backed by just 8% of respondents.

Ian Wright, the chief executive of the Food and Drink Federation said: "Everybody has had enough of the Brexit debate.

"It is, though, vital that we didn't allow the fact that the nation is exhausted to mean we sleepwalk into mistakes that will haunt the UK economy for a generation."