The Supreme Court surprised the market yesterday by ruling that Boris Johnson had acted illegally by proroguing parliament for such a long time before the official Brexit date.
The president of the Supreme Court said ‘the decision to advise Her Majesty to prorogue Parliament was unlawful because it had the effect of frustrating or preventing the ability of Parliament to carry out its constitutional functions without reasonable justification’. Parliament will now resume today following its short break according to Commons speaker John Bercow.
The announcement caused a small jump in the Pound because (in theory) it allows MPs more time to put further measures in place to prevent a no-deal. This move in the pound quickly fizzled out though, as a lack of certainty remains over the whole Brexit saga. Now that the Supreme Court have ruled, what is next for the Pound? Here’s some of the main scenarios that could play out:
- Election – Certainly, Boris is under a lot of pressure to resign but it’s likely he push for another election vote as the Tories are ahead in the polls. This would be Pound negative but it’s unlikely he will get enough votes to get this before his 31st Oct deadline.
- No confidence vote – Many lawmakers are now pushing to oust the PM by a vote of no confidence, as they feel they can no longer afford to wait. This would likely be initially be positive for the Pound (as chance to take down hard Brexiteers) but then negative when an election is the outcome.
- Deal with EU – Boris conjures up a deal before his deadline and saves face (maybe a twist on TMs deal) – Sterling positive.
- No deal outcome – Should the EU reject an extension request (needs to be unanimous decision) or if Boris finds a way around the law that requires him to now request a 3-month extension from the EU (which Boris has explicitly ruled out doing) – Sterling negative.
Our base case scenario is that there will be a Brexit extension followed shortly by an election. Undoubtedly, this rollercoaster ride looks set to continue for the Pound as it remains at the mercy of politics. Remaining agile with your buying and selling (along with some strategic hedging) to take advantage of any spikes/dips seems to be prudent over the short- to medium-term.