British House of Commons approves Brexit deal; Rallying the British pound against competitors; The British economy looks positive.
Britain’s House of Commons yesterday approved a trade deal with the European Union by a 521-73 vote, ending the Brexit saga just before the deadline.
The new trade rules are due to come into effect in the New Year and have met with little opposition in parliament, as leaving the European Union with any deal was preferred over leaving without a deal. Despite overwhelming support, some members of parliament opposed it, including Scotland’s First Minister Nicola Sturgeon.
Britain is now the first country to leave the European Union after nine months of complex negotiations. The agreement guarantees the free movement of goods, services, capital and people, the restriction of the European Court of Justice from any potential trade dispute between the two bodies, and zero tariffs and quotas, although some customs and regulatory controls are now becoming relevant.
During the first five and a half years, 25 percent of fisheries will be allowed under EU control. After this period, there will be regular negotiations on this issue.
British Prime Minister Boris Johnson welcomed Parliament’s decision and said the fate of the United Kingdom now rested in the hands of the British people.
“December 31 at 11pm marks a new beginning in our country’s history and a new relationship with the EU as their greatest ally. The moment is finally upon us and now is the time to seize it,” Johnson said.
Very little relevant economic data was released this week. Only the national home price index for December was released, showing it rose 0.8 percent, more than expectations of 0.4 percent, though down from 0.9 percent the previous month. In annualized terms, it rose 7.3 percent, also higher than the 6.7 percent forecast and up from 6.5 percent in the previous month.
With the recent announcement of a Brexit deal and the approval of the Oxford-AstraZeneca vaccine, sterling rose against all major currencies as the announcements appeared to increase traders’ risk appetite. The recent weakening of the dollar has also played an important role in strengthening the pound.
Sterling gained 0.90 percent against the dollar, posting gains for a second day in a row. The currency has climbed 0.80 percent so far this week, gaining for the third week in a row, and is poised to end the year in positive territory.
The pound has been on a three-month streak, gaining 2.49 percent in December after rising 2.94 percent and 0.19 percent in November and October, respectively.
Since our last report, economic growth for the third quarter has been revised upwards, now at 16 percent after a decline of 19.8 percent in the previous quarter. Unemployment figures were unchanged, signaling a positive situation in labor markets.
According to the Treasury, the UK economy is expected to recover by 5.4 percent next year, assuming the introduction of a vaccine allows a return to normal. Although this is the highest growth rate in British history, such a recovery is expected given the current circumstances.
“If you see a bigger and deeper decline in one year, you’re likely to see a much faster rise next year,” said a Nomura analyst. “That’s how it works.”
Inflation figures for November were well below the Bank of England’s inflation target, which currently stands at 2 percent. The consumer price index missed analysts’ expectations, rising 0.3 percent year-on-year after rising 0.7 percent in the previous period. It fell 0.1 percent on the month, also missing analysts’ estimates and underperforming the previous month.