REUTERS: Sterling surged by more than 1 percent yesterday after a UK court ruled against government plans to begin the formal process of leaving the European Union without seeking the approval of parliament.
The ruling offered hope to investors who worry Prime Minister Theresa May’s cabinet is set on a “hard Brexit” and believe it might be tempered by a stronger hand for MPs, a majority of whom supported the status quo in June’s referendum.
Sterling rose above US $1.24 for the first time in more than three weeks and European banking stocks, another big source of concern in the process, gained 1.5 percent.
UK midcaps, more geared to the domestic economy than their bluechip peers, jumped nearly 2 percent, significantly outperforming the more globally-focused FTSE 100. The daily spread between the moves of the two indexes was poised to hit its highest since 2009.
“The High Court ruling is a body blow for Theresa May and the Brexit-leaning ministers at the heart of government,” said Neil Wilson, an analyst at brokers ETX Capital in London.
“It’s made triggering Brexit a lot trickier and has given sterling a massive shot in the arm.”
The government said it would appeal the judgment in a ruling set for early December but some analysts were already speculating that the decision might even see Britain backtrack on plans to leave the bloc.
Others said the impact would be far more limited and a number of bank traders stressed that the bounce for the pound still looked like a short-term correction to the falls of the past three months, which have knocked almost a fifth off its value.
“We need to keep the sterling rebound in context,” said Jeremy Stretch, head of currency strategy at CIBC in London.
“It is more of a corrective bounce than a turn in the trend. Sterling is in a corrective phase but we need to be careful about chasing it too hard in the short term.”
Banks have already begun to think about the details of the process should parliament have more formal say.
Analysts at the global currency market’s biggest player, Citi, said that MPs were unlikely to block the formal invocation of Article 50 of the EU constitution, which triggers exit negotiations.
“Still, a parliamentary vote would be a setback for the PM who had firmly argued that triggering EU exit would be her decision and it could resurface divisions within the Conservative Party,” they said.
“MPs could feel empowered to demand the revelation of the government’s negotiating strategy, including whether it aims to continue Single Market access and Customs Union membership.”
Analysts from Nomura last week laid out research that showed that while 74 percent of the MPs known to have a view supported remaining in the EU before the referendum, 61 percent of constituencies voted in favour of leaving.
“It’s hard to ignore that 51.9 percent of the country voted to leave the EU,” they said. “It’s even harder when you are an MP who at some point will stand for re-election, especially knowing that 61 percent of the parliamentary constituencies that vote in MPs also voted to leave.”