Brexit update – Sterling weakens further

Developments in the last few weeks provide further indication that the UK may be heading for a hard Brexit. Theresa May is now expected to trigger Article 50 in mid-March which will officially start exit negotiations between Britain and the EU. And she seems determined not to guarantee the rights of EU citizens already living in Britain in order to increase the Tory government’s negotiation power with the EU regarding the rights of British expatriates living in EU countries. Despite the House of Lords voting to amend the Brexit bill in order to safeguard the rights of EU citizens living in the UK, the government is planning to overturn this amendment via a new vote in the House of Commons where the Tory party has an absolute majority (330 seats out of a total of 650). And as the UK government seems determined for a hard Brexit in order to have full control on UK immigration flows, market nervousness has increased about the potential impact of a hard Brexit on the UK economy, particularly inflation and a deferral of long term investments. This increased nervousness about a potentially hard Brexit is reflected in sterling’s price. The currency, after a brief rebound to $1.27 on February 1st, is now at $1.22 and is approaching its post Brexit low of $1.20 set in mid-January.