Pound slips as Britain thrown into 'constitutional warfare' over Brexit

Tom Belger
Finance and policy reporter
The pound is under pressure after the UK government suspended parliament. Photo: PA

The pound slipped again on Thursday morning after Britain was thrown into “constitutional warfare” between the government and parliament over a no-deal Brexit.

Sterling (GBPUSD=X) had fallen to a six-day low against the dollar on Wednesday at about $1.22 after prime minister Boris Johnson sparked uproar by seeking the Queen’s approval to stop parliament sitting for up to five weeks. It was down 0.2% in early trading at around 8.30am on Thursday morning.

Oliver Harvey, a macro strategist at Deutsche Bank, said the move meant time was now “extremely tight” for rebel MPs to use legislation in parliament to block a no-deal Brexit on 31 October.

An alliance of MPs from across parties had begun to emerge earlier this week, but the government’s deeply controversial move is seen as a pre-emptive strike to dash their hopes of stopping the government.

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Suspending or ‘proroguing’ parliament would be seen as a legitimate move in normal circumstances, as a prelude to a government laying out its new agenda in a Queen’s Speech.

But this suspension between 10 September and 14 October is the longest since 1945, and the timing suggests frustrating Brexit rebels is the real motive.

Rebels insist they still have time in parliament next week to seize control of the order paper through an emergency debate and force the government to extend Britain’s EU membership.

MPs could also seek to topple the prime minister through a vote of no-confidence, with several senior Conservative MPs suggesting they now see no alternative to bringing down their own leader.

“What appears to be being forgotten amongst all of the heat, light, and hysterical claims of a coup from yesterday’s events is that MPs still have two big levers they can pull to try and prevent a no deal Brexit from happening,” said Michael Hewson, chief market analyst at CMC Markets.

“One of them is the previously mentioned vote of no confidence, which could come as soon as next week, and the other lever is to revoke article 50, both of which MPs seem curiously reluctant to use,” he added.

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But Harvey said MPs may not have enough time left to pass legislation, and there are more parliamentary obstacles now than during similar efforts under Theresa May’s government.

He also said a no-confidence vote next week could see the government react by scheduling an election for after Brexit.

A similar vote when parliament returns in the second half of October would mean “no time left” for an election before Britain’s planned exit date.

One alternative would see MPs block such moves by forming a new government of so-called ‘national unity’ during a two-week window after a no-confidence vote, but opposition MPs have so far failed to agree a possible coalition.

The pound dropped against the dollar after Johnson suspended parliament. Photo: Yahoo Finance UK

Many Liberal Democrat MPs and Conservative rebels are hostile to even a temporary “caretaker” government under Jeremy Corbyn, with some refusing to even attend talks with the Labour leader over stopping a no-deal exit.

Meanwhile the Labour leader has shot down the suggestion of an administration under a more centrist figure from his own or other parties.

Harvey said it was not out of the question that Johnson’s move, which even former Tory chancellor Philip Hammond called a “constitutional outrage,” could force the rebels to set aside differences.

“It could crystallise opposition to a no deal Brexit next week in the House of Commons, leading to a unity government,” he said.

But he added: “The calculation here would be that the prime minister is taking a high stakes gamble on forcing a vote of no confidence and daring MPs to push him towards calling a general election, when they return from recess next week.”

Some MPs are unwilling to back an alternative Jeremy Corbyn-led government to block a no-deal Brexit. Photo: PA