Theresa May, has appeared to back down on her insistence that the final decision to leave the EU will not be put before parliament, and the pound rose a little on the news. But then there is also the issue of surging bond yields and the oil price.
The debate is to occur in parliament, the Labour Party called for the motion to discuss “full and transparent debate on the government’s plan for leaving the EU.”
How did the Prime Minister, Theresa May react? Well she tabled an amendment accepting the motion. The amendment also said that parliament should not attempt to block Brexit or “undermine the negotiating position of the government.”
And with that hint – tiny hint – of compromise the pound rose a little. Mind you, at the time of writing (7.37 BST 12 October) there are just 1.1136 euros to the pound compared to 1.27 the day before the referendum and there are just 1.2311 dollars to the pound, compared to $1.30 two weeks ago.
But other market movements are occurring.
Sure the FTSE 100 hit an intra-day high yesterday (11th October), but that is because the fall in the pound is making UK shares look cheap, especially if the shares relate to companies that enjoy a significant proportion of their revenue abroad and in foreign currencies.
But the last two months has also seen the yield on UK government bonds almost double – from 0.52% yield on UK ten-year government bonds on August 12, to 0.98% today.
That in turn will make the cost to the government of borrowing more money more expensive.
Meanwhile the oil price has been creeping up, and has increased by around a fifth in the last month or so.
The falling pound and rising oil price will hit inflation – temporarily. Don’t be surprised if it tops 3% next year, and may eventually go close to 5%, before falling back again later this decade.
