Breakthrough on Brexit and “geoeconomics” by Mike Dolan
The long-awaited agreement on Northern Ireland’s post-Brexit trade rules, reached between UK Prime Minister Rishi Sunak and President of the European Commission Ursula von der Leyen on Monday, still requires the support of significant parliamentary parties as well as all groups in that part of the island of Ireland that the UK controls.
Yet many political and financial experts were taken aback by the revisions made to the contentious Northern Ireland protocol, which Britain had first agreed to include in the original Brexit agreement but later said couldn’t be implemented.
And initial soundings on its progress are hopeful.
There has been a propensity to downplay this for markets that have become jaded after at least seven years of back-and-forth over every facet of Brexit, and for many traders and experts who tend to glaze over at its mere mention.
The main issues for investors right now are double-digit inflation, energy, rising taxes following last year’s budget U-turn, and widespread labor unrest, even though many of those issues may have something to do with Brexit itself, which went into effect three years ago following 2016’s narrow referendum.
It’s been a gloomy winter, with much domestic soul searching. And it’s little surprise the International Monetary Fund forecast Britain would be the only economy of the G7 to contract this year.
UBS Chief Investment Officer Mark Haefele reckoned that in the short term the economy “remains more sensitive to drivers like heightened rates, higher taxes and macro headwinds.” ING’s strategists concluded “rate differentials are likely to prove more important drivers of sterling than the new UK-EU deal.”
But there’s little doubt the pound perked up on what was a rare glimmer of positivity after the dark winter and a year of political, budgetary and bond market chaos. It gained 1.2% and 0.7% this week respectively against the dollar and the euro.