The pound has plunged after Attorney General Geoffrey Cox dealt a likely fatal blow to Theresa May’s exit deal by admitting the 11th hour agreement struck with the EU last night failed to change his legal advice.
Sterling slumped by more than 1 percent after Mr Cox said the latest concessions from the EU don’t eliminate the risk the country will remain entwined with the EU customs union indefinitely.
His advice suggests that many lawmakers who have opposed May’s deal are unlikely to change the way they vote in Parliament later. That raises the prospect of more uncertainty, including a potential delay to Brexit.
Sterling slumped by more than 1 percent just after 11am when the Attorney General announced his legal advice (right) after a strong performance earlier in the morning
Minutes after Cox’s advice, the pound was 1.1 percent lower at $1.3014, almost two cents down from where it was earlier.
David Cheetham, chief market analyst at XTB, said it now ‘looks like any hopes of an unlikely victory for the PM’s deal later have just been extinguished.’
The pound surged overnight as investors welcomed news that Mrs May could secure a Brexit deal after winning legally binding changes from the European Union.
Sterling peaked at €1.17 after Cabinet Office minister David Lidington announced the Brexit break through in the House of Commons at about 10pm last night.
This means it has gone from being the best-performing major currency on the markets today to the worst in just a few hours.
Sterling peaked at €1.17 after David Lidington announced the Brexit breakthrough in the Commons at about 10pm last night – and is still trading at a similar level this morning
Mrs May said she ‘passionately believed’ in her Brexit deal and had now addressed the concerns raised by Parliament in January over the Northern Irish backstop.
She said she had ensured there would be ‘no indefinite backstop’ and any attempt to keep the UK in the backstop by the EU would be dealt with by an ‘arbitration mechanism’.
European Commission president Jean-Claude Juncker said: ‘Our agreement provides meaningful clarifications and legal guarantees to the Withdrawal Agreement and backstop.
‘We left no stone unturned, our mind has always been open, our work always creative and our hand has always been outstretched.
‘It is in this spirit that today the Prime Minister and I have agreed on a joint legally-binding instrument relating to the Withdrawal Agreement. This instrument provides meaningful clarifications and legal guarantees on the nature of the backstop.
‘The backstop is an insurance policy, nothing more, nothing less. The intention is for it not to be used, like in every insurance policy.’
The three key pillars that might save Prime Minister Theresa May
THE EXIT MECHANISM
What it is: A legally binding text, added to the withdrawal agreement, which sets out the temporary nature of the Northern Ireland backstop.
Known as a ‘joint interpretative instrument’, it states that the EU ‘cannot act with the intention of applying the backstop indefinitely’. If it did so, the UK could challenge it through arbitration and – ultimately – get out.
What it means: Legal advice on the deal from the Attorney General Geoffrey Cox warned that the UK could in theory become trapped indefinitely in the controversial backstop.
This attempts to reassure MPs, especially in the Eurosceptic European Research Group, by showing a clear – and legally binding – escape route. It also gives more weight to moves to replace the backstop with technological solutions.
THE UNILATERAL DECLARATION OF INDEPENDENCE
What it is: A UK-only document that sets out in explicit terms the temporary nature of the backstop. It makes clear that the UK Government’s understanding is that there is nothing to stop Britain unilaterally leaving the backstop if it appears to be becoming permanent.
What it means: This document makes clear the UK’s view that we can’t be trapped in the backstop.
Although not legally binding over the EU, it would set out in unambiguous terms that a future government can decide to leave at any point if there was no prospect of escaping via a trade deal.
THE ASSURANCES LETTER
What it is: On January 14, Donald Tusk and Jean-Claude Juncker wrote to Theresa May in a bid to address UK concerns about the backstop and give reassurances that it would only be temporary.
It was dismissed at the time because it was not legally binding, but the new deal puts it in binding legal form.
What it means: The letter contains assurances about the temporary nature of the backstop, that the EU would use its ‘best endeavours’ to do a deal, and that it would only be in place as long as ‘strictly necessary’.
It also makes clear the EU will give priority to finding technological alternatives to the backstop, a critical element for hardline Eurosceptics. It makes clear the backstop cannot ‘supercede’ the Good Friday Agreement. Putting these assurances on a legal footing could be crucial.