Yesterday, British parliamentarians held a vote on a deal that Theresa May negotiated with the European Union. As expected, the members of parliament voted against the deal by a larger margin than had earlier been expected. More than 400 members rejected the deal. This decision presented the country with a major challenge, seven weeks before it is expected to leave the European Union completely. After the vote, May said that she will try to hammer a deal that is acceptable by the both sides. In his response, the opposition leader, Jeremy Corbyn said that he will table a motion of no confidence against the prime minister today. She is widely expected to survive the vote because both parties don’t want an election at this time.
The country now enters into uncharted territories as the March deadline nears. If the country exits the EU without a deal, the two sides will have to trade using the World Trade Organization (WTO) rules. There is also a possibility that the business environment will be challenging. Big companies based in the UK that have EU operations may suffer because of the disruption in the supply chain. The housing market in major cities could suffer as demand for housing declines.
However, amidst all the darkness, there is a silver lining. First, while focus has been on the United Kingdom and its need for a deal, investors have forgotten that the European Union too wants a deal. As such, the EU could try to accommodate the issues raised by British politicians. Second, even as the parliament rejected the deal, the consensus is that most members want to leave with a deal. This is because both members fear the job losses in their constituencies. Therefore, there is a likelihood that the two sides will negotiate and reach a deal that is acceptable in parliament. Finally, there will be European elections mid this year. There is a possibility that this will bring flexibility to the members who want a strong Europe.
Perhaps, these are the reasons why the sterling rose sharply after the vote was made. However, for traders, there is a need for caution when it comes to trading the sterling. This is because even in a trend, a single news or rumor can lead to a sharp reversal in price.