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Brexit and the Importance of the December 12 Election

Jignesh Davda

 

How Did We Get Here?

For many UK citizens, the topic of Brexit has completely fallen off their radar. With several delays and constant talk of obstacles, it certainly seems like Brexit will never happen. However, recent developments have significantly increased the odds and the outcome of the December 12 election will have a major influence over how things play out with Brexit from here.

UK Prime Minister Johnson managed to secure a deal with the EU in October and was set to deliver an exit at the end of October. However, he faced a hurdle in Parliament and threw in the towel in trying to push it through by the October deadline.

The main issue was that Johnson no longer had a majority and he saw that the odds were stacked against him in trying to push a deal through, especially with the short time frame he was faced with.

This led to a call for a snap election. Johnson hopes to get a majority, and with that, he will be able to push through his Brexit deal.

What the Polls are Saying

The headlines over the past week have been saying that the Conservative party lead over Labour has been narrowing. This does appear to be the case for the most part.

Conservative lead over Labour

The above chart is a consolidation of most of the major polls. It shows that the Conservative party held a comfortable double-digit lead for the second and third week of November, and that the lead has declined since.

The peak during this period was a poll conducted between November 14-18 by Kantar which showed a lead of 18 points. Last week, a poll conducted by The Daily Telegraph, and a poll by ICM Research showed that the lead had narrowed to a mere 7 points. A poll conducted by the Independent newspaper showed a lead of 6 points. These figures are certainly at the lower end of the spectrum.

At the same time, The Observer reported a 15 point lead in a poll conducted between November 27-29. This is certainly a significant deviation from the other polls conducted last week.

Another poll that was closely watched last week was the YouGov’s MRP poll. This particulate model gained popularity after it called 93% of seats correctly in 2017. The polls indicated a 10 point lead for the Conservative party.

The poll further showed, if the election were held tomorrow, that the Tories stand to win 359 seats which is 42 more than they took in 2017. Labour, on the other hand, is looking at 211 seats, down 51 seats.

What Happens if Labour Wins

Labour is campaigning to leave the final say on Brexit to the UK voters. The plan is to renegotiate the deal that Johnson made, within a three-month time frame and then put that deal up for a vote.

This sounds like a great idea, in theory. The main problem with it is that it will delay Brexit further because of the three-month negotiating period with the EU. This on its own could be a problem as the EU is not likely to be forthcoming in negotiations after having already reached a deal with Johnson.

Beyond that three-month deal, it could take a significant amount of time to conduct and process a vote on the deal. Further, it remains unclear as to what would happen next if it was voted down by the public. If that means Labour goes back to the negotiating table, then Brexit could be drawn out for a very long period.

The delay thus far has already caught the attention of the Bank of England. At their November MPC meeting, two members voted unexpectedly to cut interest rates. The members expressed concerns over economic growth and felt that cheaper borrowing costs would help to address it. To be fair, the concerns arose from a combination of Brexit and the ongoing trade war.

Nevertheless, Brexit brings about uncertainty which the central bank argues is bad for business investments, and as a result, the economy. From the standpoint of the financial markets, a Conservative win would tend to keep Sterling strong with several analysts looking at a move up to roughly 1.35 in the pound to dollar exchange rate.

This article was originally posted on FX Empire

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