REPORT
By Gökhan Kurtaran
London letter, week beginning Jan. 2

Court ruling will be decisive for Brexit path

The long-awaited court ruling on whether there will be a need for a parliamentary vote to trigger Article 50 is expected to be announced this month. Last year U.K. Prime Minister Theresa May promised to trigger Article 50 which would officially start the leaving process from the EU in March. However, the court ruled that the process would need parliamentary approval, which means that May has not the right to independently start the leaving process.  Both May and many leading ministers reacted to the decision and took the case to the Supreme Court for appeal. This month, markets are awaiting the court’s final decision, which will undoubtedly set the U.K.’s Brexit path in 2017.

According to the Telegraph newspaper, Supreme Court judges are split over the historic Article 50 ruling, and look set to decide by a majority of seven to four to give Parliament a vote on when Britain leaves the European Union, Government sources believe. Upon scrutiny of the U.K.’s economic outlook, it is clear that the imminent aftershocks of the Brexit on the economy have been less than what was feared prior to the referendum. Despite the rising uncertainty and slowing down of the economy, the outlook remains stronger with unemployment at a near 11 year low of 4.9 percent until last October. The U.K. economy grew faster than previous at 0.6 percent in the third quarter, according to official estimates. Annual GDP growth by the third quarter of the year was 2.2 percent. However, the sharp devaluation of the pound left many retailers in a difficult position with the rising cost of imports and with inflation, which could divert consumer demand in the long run.  

After the EU referendum in June, sterling fell as much as 20 percent against the U.S. dollar but has recovered slightly down to around 16 percent.

The Consumer Prices Index rose by 1.2 percent in the year to November 2016, the highest rıse since October 2014, compared with a 0.9 percent rise in the year to October.

Monthly U.K. retail sales rose more than expected in November as shoppers snapped up Black Friday deals on the high street and online and total sales volumes climbed 0.2 percent in November compared with October.

Britons expect a sharp rise in inflation over the coming year following the sharp decline in the value of sterling after Britain's vote to leave the European Union. A Bank of England survey showed last month that a hike in interest rates is also on the way. The survey showed that average public inflation expectations over the next 12 months rose to 2.8 percent in November from 2.2 percent in the previous survey in August. In the survey, 41 percent of respondents expected interest rates to rise over the next 12 months, compared with 21 percent in August.

With the current outlook, the U.K. economy may well be able to handle the shocks of leaving the EU, however rising political uncertainty should also be taken into consideration as there were calls last year for Theresa May to hold general elections to renew her mandate to lead the way to Brexit.

The editorial column of The Independent newspaper last month said, “A general election in the next 12 months would be healthy for our democracy. If the economy worsened and living standards fell, May might be judged by voters as lacking legitimacy – as Gordon Brown was after ducking an early election in 2007.” 

All in all, the U.K.’s path to Brexit will be defined by the conclusion of the Supreme Court. If the court rules for a Parliamentary vote, more calls for a general election could well be heard this year.

02 Jan,2017

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