Pound tumbles amid Brexit resignations

Pound tumbles amid Brexit resignations

The value of the pound has plummeted after a series of resignations from prime minister Theresa May's cabinet after it approved the Brexit deal late last night.

Secretary of State for Work & Pensions Esther McVey was the latest to resign after Brexit Secretary Dominic Raab stood down earlier this morning (November 15).

Northern Ireland minister Shailesh Vara, Brexit minister Suella Braverman, and parliamentary private secretary at the Ministry of Defence Anne-Marie Trevelyan also resigned.

These developments have prompted the value of the pound to tumble by 1.6 per cent this morning and it is currently trading at $1.27.

The pound had been doing relatively well earlier today, rising to $1.30 on the back of the cabinet's approval of the Brexit deal yesterday evening (November 14) but it began falling at around 8am when the resignations began.

Richard Buxton, head of UK equities and manager of the Merian UK Alpha Fund, said sterling would be "judge and jury" of the UK's economic prospects so investors should keep an eye on currency markets for their view on the prospects of the Brexit deal's success.

He said: "The Westminster rumour mill will be in overdrive, but investors are encouraged to not be over-influenced by every twist and turn in the political drama, which will continue to run for some time.

"Even if it is a close thing, my expectation is that Parliament will ultimately endorse an agreement rather than risk a 'no deal' exit, with potentially damaging consequences for the UK economy, its citizens and voters."

The UK and the European Union reached a deal on Tuesday evening (November 13) and it was approved by the cabinet after a marathon meeting yesterday.

The deal includes the basis for a transition period which will start after Britain leaves the European Union on March 29, 2019 and last for 21 months, during which time the UK must abide by European laws such as Mifid II and General Data Protection Regulation (GDPR).

If more time is needed to reach a long-term deal, the transition period can also be extended.

The deal also includes a provision for a backstop, which means a single EU-UK customs territory will be established, which will apply from the end of the transition period until a subsequent agreement becomes applicable.

This was included to solve the issue of the border to Northern Ireland, where both sides are seeking to prevent a hard border with the Republic of Ireland.

The UK and the EU have also agreed an outline political declaration on their future relationship, which includes provisions for a "close and structured cooperation" on financial services regulation which was welcomed by figures in the industry.

George Lagarias, chief economist at Mazars, said: "What does this mean for investors? For the moment, very little. If the parliamentary hurdle is cleared, a prerequisite for a Brexit 'transition period' until January 2021, it would be positive over the shorter term, as it extends the current period of stability for two years.