Another week, another political crisis in the UK. Theresa May’s new soft Brexit strategy, agreed at Chequers on Friday, has been undermined already after David Davis resigned from the Cabinet. He also roundly criticised her negotiating strategy in his resignation letter, claiming it will not deliver on the mandate given by the result of the referendum.
What happens now is anyone’s guess but it seems likely that Theresa May will persist with her new strategy and will therefore face a leadership challenge from the Tory Brexiteers led by Jacob-Rees Mogg. If she faces them down, then a very soft, Norway-style Brexit is in the offing. If she loses, a hard Brexit or possibly a general election would seem likely. So far, markets have reacted quite calmly to the news but will be closely watching the reaction of other senior Cabinet ministers.
From an economic perspective, the situation is increasingly absurd – we are 8 months away from leaving the EU and the government cannot agree what it wants from Brexit. They are disagreeing not over minor details, but fundamental questions about the future direction of the country and the economic relationship with our biggest trading partner. While Mark Carney was talking up the UK economy last week and markets are still cautiously pricing in a rate hike in August, this could easily be overtaken by events.
Elsewhere, the economic news has generally been pretty good in most parts of the world although the increasingly hostile trade rhetoric is a cause for concern. This week, US inflation numbers will be released alongside UK monthly GDP numbers.
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July 2018
Source: https://www.quiltercheviot.com