British House of Commons approves Brexit deal; British pound rises against rivals; The British economy looks positive.
The British House of Commons yesterday approved a trade agreement with the European Union by 521 to 73 votes, ending the Brexit saga shortly before the deadline.
The new trade rules are due to come into force on New Year’s Day and have met little opposition in parliament, as leaving the European Union with any deal was preferred to no deal. Despite the overwhelming support, some members of parliament opposed it, including First Minister of Scotland Nicola Sturgeon.
Britain is now the first nation to leave the European Union after nine months of tough negotiations. The agreement guarantees the free movement of goods, services, capital and people, a 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 checks are now becoming relevant.
25 percent of fisheries under EU control will be ceded during the first five and a half years. After this period, there will be periodic negotiations on this issue.
British Prime Minister Boris Johnson welcomed Parliament’s decision, saying the fate of the United Kingdom now rests 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. This moment is finally upon us and now is the time to seize it,” Johnson said.
Economic calendar
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, better than expectations of 0.4 percent, though lower than the previous month’s 0.9 percent gain. On a year-over-year basis, it rose 7.3 percent, also higher than forecasts of 6.7 percent and up from 6.5 percent in the previous month.
British pound rallies
With the recent announcement of the Brexit deal and the approval of the Oxford-AstraZeneca vaccine, the pound rose against all major currencies as the announcements appeared to increase risk appetite among traders. The recent weakness of the dollar has also played an important role in the appreciation of the pound.
Sterling gained 0.90 percent against the dollar, posting gains for the second day in a row. So far this week, the currency is up 0.80 percent, up for a third week in a row and set to close the year in positive territory.
The pound has enjoyed a three-month rally, gaining 2.49 percent in December, after gaining 2.94 percent and 0.19 percent in November and October, respectively.
UK economy in good shape, inflation data disappointing
Since our last report, economic growth for the third quarter has been revised upwards, now at 16 percent after falling from 19.8 percent in the previous quarter. Data on unemployment remained unchanged, which indicates a positive situation on the labor market.
According to the Treasury, the British economy will recover by 5.4 percent next year, provided that the introduction of the vaccine allows a return to normality. Despite this being the highest growth rate in British history, such a recovery is expected given the current circumstances.
“If you have a bigger, deeper decline in one year, you’re likely to have a much faster rise the next,” said an analyst at Nomura. “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 a 0.7 percent rise in the previous period. On a monthly basis, it fell 0.1 percent, also missing analysts’ forecasts and below the previous month’s average.
