Newspaper article The Evening Standard (London, England)

Political Risks Still Threaten the Calm Waters for Sterling; ECONOMIC ANALYSIS

Newspaper article The Evening Standard (London, England)

Political Risks Still Threaten the Calm Waters for Sterling; ECONOMIC ANALYSIS

Article excerpt

Byline: Russell Lynch

PICTURE the scene: a grimfaced Sir Graham Brady, chairman of the Conservatives' all-powerful 1922 Committee, speaks to the cameras outside party headquarters in November. It's bad news for Theresa May: he's got 48 letters calling for a confidence vote in the PM.

Brexiteers trigger the vote as a wipeout in this May's local elections is followed by one compromise too many on a trade deal with the EU, which leaves the European Court of Justice in effect calling the shots. The PM loses, the Eurosceptic party membership puts Boris Johnson in 10 Downing Street, but overwhelming pressure to go to the country leaves Jeremy Corbyn's Labour the largest party after an election early next year. He takes power, backed by the SNP: hang onto your hats.

It may sound fanciful, as fear of Corbyn appears to be the main glue holding this fragile Government together. But speaking to a few Citywatchers this week, they put the chance of it happening at between 20% and 25%: that's a 4/1 or a 3/1 shot, and there were plenty of winners setting off on longer odds at the Cheltenham festival last week. Transition or no transition, there are still landmines such as the Northern Irish border issue kicked into the grass again this week. If that doesn't get sorted and forces the Unionists to withdraw their support from the Government, then it can't pass a Budget. And don't forget those 13 Scottish Conservative MPs angered by another compromise, this time over EU fishing rights in UK waters until the end of 2020 another potential source of rebellion.

The point is that despite this week's welcome news on transition, the world is still a very uncertain place. But you wouldn't think that to look at sterling markets. Chewing the fat with one currency strategist over lunch, he can't work it out particularly sterling volatility. …

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