Final Whistle, Extra Time or Penalties
[Please note: The Heritage Pay website is undergoing maintenance. So some historical pages in the Market Commentary section may not display properly.]
The coming week is a key one for Brexit. The need for an Article 50 extension is almost inevitable now - subject to the unanimous agreement of the EU 27. So if you had had enough of the political football called Brexit, unfortunately this may now go to extra time or even penalties!
This week we also take a peek at the state of the UK's fiscal finances because the Chancellor of the Exchequer, Phillip Hammond, will give his Spring Statement on Wednesday. It is unlikely to herald any immediate policy actions, but will set the context for some important upcoming decisions.
So it’s here at last! On Tuesday the House of Commons will vote for the second time on PM May’s EU withdrawal deal. Depending on the outcome there may be further votes on Wednesday on whether a ‘no deal’ Brexit should be ruled out and on Thursday on whether the UK should ask for a delay to the Brexit date. Ahead of tomorrow’s motion, reports suggest there has been no major breakthrough in talks between the UK and the EU. In particular there has been little sign of concessions from the EU on the Irish backstop deal. That is generally seen as crucial to the outcome of Tuesday’s vote. The consensus opinion is that Tuesday’s result is likely to be closer than the first vote in January when the Government lost by a record margin. As indications from previous votes, and indeed comments from many MPs, suggest that a majority in the HoC are against a ‘no deal’ exit, it seems logical to think that if Tuesday’s vote is lost the subsequent two votes will result in a majority to delay Brexit. However, nothing can be taken for granted and the range of potential outcomes is likely to keep markets on edge. Any vote to extend Article 50 will have to be agreed by the EU-27, most likely at the EU summit the following week. The EU may want indications of the extent of any delay and the UK’s plan for reaching an agreement that is acceptable to Parliament before agreeing to this.
Wednesday’s UK Spring Statement is likely to be a low-key affair that will almost certainly be overshadowed by the Brexit debates in the House of Commons. Chancellor Hammond’s decision a couple of years ago to shift the main budget statement to the autumn has already downgraded the importance of the Spring Statement. Ongoing political uncertainty seems likely to have reinforced that trend for this year. It is less clear whether the Chancellor is ready to ease up on his spending restraints more generally. Back in the autumn he set some provisional targets for overall spending over the next few years. These may still be subject to change. In particular, the Chancellor is likely to argue that the outcome of the Brexit negotiations will have a major impact on his room for manoeuvre. But as things stand they point to a relatively modest increase in overall spending over the next few years. Given the commitments already mentioned, those spending totals will not leave much room for spending increases elsewhere. Moreover, some of the areas that would miss out are ones that have already been squeezed sharply over the past few years. We have had a taster in recent days of the likely implications of this with the media criticism of the squeeze on police funds. But that may only be the tip of the iceberg, as recent reports point to funding pressures across a range of areas. Prisons, education, and care for the elderly have all been highlighted in recent reports and it is not hard to come up with many other examples. That all adds up to a difficult spending review whatever the outcome of Brexit. The key issue is how committed the Chancellor is to holding the line on spending. By the autumn it should be much clearer whether this is really the end of austerity.
Have a great week. Contact the Heritage Pay Team to benefit from further market insights on your international payments.