Pound dives after Brexit resignations

City trader Image copyright Getty Images

Sterling has fallen sharply after Cabinet ministers Dominic Raab and Esther McVey quit over Prime Minister Theresa May’s draft Brexit deal.

The pound fell more than 1% against the dollar to $1.2798 and dropped more than 1% against the euro to €1.1313.

On Wednesday, Theresa May had secured Cabinet backing for the draft Brexit agreement with Brussels.

Business had generally welcomed the agreement, as it avoided the prospect of a cliff-edge Brexit.

Pound vs US dollar

What has happened to the pound?

Initially the pound had rallied on Wednesday after the Prime Minister announced she had the backing of the cabinet for her Brexit withdrawal plan.

Wednesday’s trading had been volatile, while the outcome of Theresa May’s five-hour meeting with cabinet colleagues remained unclear.

Sterling had fallen to $1.28 at one point, but then rose to $1.30 following the announcement, before falling back slightly.

However, on Thursday morning sterling fell after Northern Ireland Minister Shailesh Vara quit in protest over the agreement, and then dropped sharply when Brexit Secretary Mr Raab resigned. Shortly afterwards, Work and Pensions Secretary Ms McVey also stepped down.

Pound vs euro

How did the government try to sell the agreement to business?

Sir Roger Carr is chairman of BAe Systems, he also chairs one of the prime minister’s five new business councils set up to advise on how to create the best business conditions in the UK after Brexit.

He was on the call Chancellor Philip Hammond and Business Secretary Greg Clark held with bosses on Wednesday night following the agreement. He gave the BBC an insight into what was said.

Mr Hammond and Mr Clark were “just trying to be very clear that this had been a long and hard process in persistence and resilience”.

“But it had reached a conclusion which would be much much better than the chaos of no decision.

“In these circumstances it’s something that had the key elements in it that people were looking for particularly in the sense of a pathway to frictionless trade and control over our borders, the preservation of the United Kingdom, and in those circumstances they were recommending that business leaders support it and I have to say the response on the call was a positive one.

“Businesspeople ultimately are pragmatists and this is about playing the cards we have been dealt rather than wishing for a better hand,” he added.

So what does big business make of the agreement?

The agreement includes a 21-month transition period, with a unilateral right for the UK to extend that, which was described as “very positive for business” by James Stewart, head of Brexit at KPMG UK

Northern Ireland also has the guarantee of a “friction-free” customs border with the Republic of Ireland.

The CBI described the agreement as a “compromise, including for business” but it unreservedly welcomed the “step back from the cliff-edge”.

The prospect of a no-deal Brexit had been “daunting business really from straight after the referendum”, CBI director general Carolyn Fairbairn told the BBC.

“We know that millions and millions of pounds has been spent on contingency planning – if this agreement continues, the button can be unpressed and we will see a fillip from that.”

“The second plus of where we got to yesterday is there is a possible path to frictionless trade now in terms of negotiating the final deal.

“I don’t think anyone thinks the transition or the backstop is the answer, so this has to be used as a route to a final deal with frictionless trade and access for services.”

However, she did sound a note of caution. “It’s not the end of the road – there’s a hard slog ahead to get that final deal that will work for the country,”

Image copyright Getty Images

So is everyone happy?

Dr Gerard Lyons, chief economic strategist at Netwealth Investment and chief economic adviser to Boris Johnson while he was Mayor of London, says the draft Brexit withdrawal deal is not something to cheer about.

“Whilst it has avoided the cliff edge, I think it’s important we don’t bury our heads in the sands here and view this as a ‘good’ deal – this is still disappointing,” he told the BBC’s Today programme.

“To make a success of Brexit, we’ve got to get three things right – our relationship with the EU, our position with the rest of the world, and our domestic economic and financial agenda.

“The biggest single problem with this divorce settlement is it ties our hands on two of those three areas – our ability to position ourselves globally, and our domestic economic agenda.”

However, he added: “The important thing is to look at the service sector and what’s good is that the financial sector is still positioned quite well but that’s as much because the European Union very much recognises that the City of London is going to remain the major financial centre of Europe.”

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