Yesterday, Sterling had the worst day since the day the UK voted to leave the United Kingdom. It dropped by more than 2% after the resignation of the Brexit minister, Dominic Raab. His resignation was followed by that of two other members of the cabinet. In his letter of resignation, he said that he would not support the deal for two reasons. First, he said that the regulatory regime that has been proposed for North Ireland presented a real threat to the integrity of the United Kingdom. Second, he said that the indefinite backstop arrangement was bad for the country because it allowed the EU to veto the ability to exit. The statement said that:

No democratic nation has ever signed up to be bound by such an extensive regime, imposed externally without any democratic control over the laws to be applied, nor the ability to decide to exit the arrangement. Above all, I cannot reconcile the terms of the proposed deal with the promises we made to the country in our manifesto at the last election. This is, at its heart, a matter of public trust.

The resignation of Raab was a major blow to the government of Theresa May. This is because he was a pillar on Brexit and one of the most respected conservatives in the country. Interestingly, his opinions have been shared with conservatives and the opposition labor party. Therefore, there are very few chances that the country will have a deal with the EU before Brexit happens. There is also a possibility that Theresa May will not last long as the premier. Already, a bill to impeach her has been tabled by an MP called Rees Moog who represents North East Somerset constituency.

There are divided opinions about the impact of a no Brexit deal. Pro-Brexit officials say that exiting the union will lead to a more global United Kingdom, which will not be bound by EU’s regulations. They also argue that the trade with the rest of the EU will continue under the WTO rules. On the other hand, those who favor a soft-Brexit argue that the UK should retain its ties with the EU. They argue that without the deal, business with the EU will be hampered and many companies that operate in the UK for the EU market will leave. Already, a number of companies like Airbus have indicated that they will leave.

The EU wants a deal that will punish the UK after the full exit. They believe that doing this will help prevent other companies from exiting the union. As things stand, the country that could be next will be Italy.

The implications of all this may be a weaker pound and euro. This is because when there is political instability, the consumer and business sentiment tends to weaken. Foreign investments tend to decline. When sentiment is down, consumer and business spending tends to fall. As consumer sentiment falls, sometimes it becomes difficult for the central bank to hike rates.

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