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Pound jumps on Brexit delay

Written by: Danielle Levy
Sterling rose after the European Union (EU) offered the UK a Brexit delay until 22 May if MPs approve the withdrawal agreement.

If a deal is not approved in the House of Commons, the EU has agreed to a shorter delay until 12 April. Prime minister Theresa May said she would work hard to gain support for her deal, which will be put to a vote for the third time in the House of Commons next week.

“I will make every effort to make sure we can leave with a deal and move our country forward,” she said.

The news caused the pound to rise by 0.65% to $1.3192 at 3.25pm.

As close to 70% of revenues from FTSE 100 companies are earned outside the UK, sterling strength weighed on the blue chip index, which was down 1.9% at 7,212 points at 3.25pm.

Kicking the can down the road

David Zahn, head of European fixed income at Franklin Templeton, remains sceptical that a short delay will fix the underlying problems that continue to haunt Brexit.

“The EU has said if Prime Minister Theresa May cannot garner parliamentary support for her negotiated withdrawal agreement before March 29, it will offer to delay Brexit for two weeks. But in our view that represents little more than a postponement of the current situation.

“The preferred outcome for both the United Kingdom and the EU remains a deal. But we think that would require some flexibility from the EU side, which it has so far been reluctant to offer,” Zahn explained.

With this in mind, he suggests a no-deal Brexit remains on the table.

“We’d estimate it has around a 30% possibility—and without any rapid progress, that likelihood will keep increasing,” he added.

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