Political instability in the UK is assured and will affect the British economy and the rest of the EU, experts say
The market assumes that Theresa May tomorrow will lose the vote on the plan for the departure of the United Kingdom from the European Union that the premier agreed with Brussels. May had agreed to expose a plan B in three days, if the Brexit vote fails tomorrow. Experts and analysts consulted trust that the European Commission can now offer a little hand to prevent uncertainty from going further. This issue, added to the bad macro economic data from China, has caused a fall in European markets.
If the pact does not receive the approval of the Parliament, the Prime Minister will have three days to modify it, something that the experts do not see probable either, and from then on it will be the Parliament that takes control of the Brexit. This can lead to several very different scenarios: that the departure of the UK from the EU is delayed for the parties to continue negotiating (in principle the planned disconnection date is March 29); that new elections be called if the Labor Party manages to take forward a motion of no confidence against the Executive of May or the convocation of a new Brexit referendum.
Whatever the scenario, political instability in the UK is assured and this will have a negative impact on the British economy and the rest of the EU. “What is not clear is how big will be this political and economic instability. In addition, the analysts forecast increased volatility in the currency markets, in the bonds and in the region’s equities.
The way to avoid this escalation of tension would be, precisely, that Europe would now consider giving some oxygen to the negotiations and the way to do it would be to lengthen the deadline that has been given for them. The market discounted a week of relative uncertainty for the European stock markets and for the euro and especially the sterling pound.
If a delay in the Bréxit deadline occurs or a positive vote for the May agreement occurs, the bullish rebound would be more likely to continue and the pound could reach the 200 period moving average, around 1.2980 USD.
However, it is most likely that there will be a negative vote in Parliament, which would bring the pound back to its previous previous resistance level at $1.2751, which would now act as support. At the moment, the British currency is trading at 1.2845 dollars, practically unchanged.
In the worst of scenarios, the Bank of England’s forecasts are quite strong if London goes to the hard Brexit. The economy could fall back to 8%, unemployment would double and there would be a shock in the financial markets and in the pound, which already collapsed 13% in a month after the referendum and could plummet by 25% according to the bank central of the country.