UK Prime Minister Boris Johnson greets newly-elected Conservative MPs at the Houses of Parliament on December 16, 2019 in London, England.
Leon Neal
The pound fell more than 0.5% in early Asian trade Tuesday after media reports said that the British government will make it illegal for the post-Brexit transition period to be extended.
Local media reported early Tuesday that Prime Minister Boris Johnson will add a revision to the Brexit bill (formally known as the Withdrawal Agreement Bill) that would explicitly rule out any extension to the transition period beyond December 2020. The U.K. is due to leave the EU by January 31, 2020.
The pound fell to a low of $1.3236, down 0.7% from late Monday levels following the report by British broadcaster ITV, and later reported by the BBC and other media outlets. Early Tuesday morning, the pound was down almost 0.4% against the dollar, at $1.3282.
The transition period seen as a time of adjustment for both sides post-Brexit. Crucially, it’s a time in which the EU and U.K. can negotiate a trade deal.
During the transition period, EU laws continue to apply in the U.K. as if it’s a member state, but the country would no longer be represented in the EU’s decision-making bodies. Currently, the transition period has the option of being extended for up to two years if both sides agree.
British media reports say that the Johnson’s government will try to make it illegal for the transition period to be extended in a bid to fast-track a trade deal with the EU before the end of 2020.
There is skepticism that an EU-U.K. trade deal could be struck in that short time-frame, however, and the pound’s fall is due to concerns that the chances of the U.K. leaving the EU without a trade deal have risen.
Boris Johnson’s Conservative Party won a resounding victory in last week’s general election and gained a majority of 80 seats in Parliament, a win that will allow it to pursue its Brexit agenda more easily.
The reported move is seen as a way for the government to show voters that backed the Conservative Party, many for the first time abandoning the opposition Labour Party in droves, that it is determined for the U.K. to leave the EU without further delay.
Since the EU referendum in June 2016, many British voters have become frustrated with multiple instances of political deadlock. The Conservatives were seen to have performed well with much of the electorate in the election due to its mantra that it would “get Brexit done.”
The latest government move has drawn criticism from the opposition, with the Labour Party’s Shadow Brexit Secretary Kier Starmer saying it represents “reckless and irresponsible behaviour we have come to expect from Boris Johnson’s Government.”
But Conservative Minister Michael Gove said Tuesday that the government was committed to securing a trade deal with the EU by the end of 2020, Reuters reported.
A weaker pound boosted U.K. equities Tuesday with London’s FTSE 100 index expected to open higher. Maarten Geerdink, head of European equities at NN Investment Partners, told CNBC Tuesday that the latest reports from the U.K. would “produce another cliffhanger for Europe.”
“It will be another target that the market can focus on,” he told CNBC’s Capital Connection. “But I do think the fact that he (Prime Minister Boris Johnson) has such a huge majority in parliament does give him a lot more room to get the deal done.” Geerdink cautioned investors that “there is still some time to see how this plays out,” however.
