Pound hovers as EU chews over Johnson's new Brexit deal

Tom Belger
Finance and policy reporter
European Commission President Jean-Claude Juncker with British prime minister Boris Johnson in Luxembourg in September. Photo: AP Photo/Olivier Matthys

The pound hovered on Thursday as the fate of UK prime minister Boris Johnson’s Brexit plans hung in the balance, awaiting a response from the EU.

Johnson set out his proposals to break the Brexit deadlock on Wednesday, conceding some ground on previous apparent red lines.

He suggested Northern Ireland could remain under EU regulations for agri-food products and industrial goods, to reduce deeply controversial border checks with Ireland.

The European Commission is now pouring over the legal text sent by UK officials to Brussels, with meetings expected between negotiators and Johnson expected to hold talks with key EU leaders in the next few days.

The Commission said in a statement its president Jean-Claude Juncker welcomed the “positive advances” in the UK’s position, and said the EU was ready to “work 24/7” to make a deal happen.

But there is deep scepticism about the chances of a deal among many EU figures, UK opposition parties, business leaders and investors, given the significant gap between both sides’ demands just weeks before Britain is due to leave.

READ MORE: Boris Johnson speech to Conservative conference fails to lift bleak business mood

Sterling remained flat against the dollar (GBPUSD=X) at just under $1.23 in early trading on Monday , after a slight rise on Johnson’s speech but barely changed on the start of the week. It was also flat against the euro (GBPEUR=X) at just above €1.12.

Deutsche Bank analysts said in a note to clients they did not expect EU leaders to agree to the offer, leaving their expectations of a deal unchanged at 20% and a no-deal Brexit unchanged at 50%.

Commenting on one version of the proposals leaked shortly before their publication yesterday, they wrote: “The two major sticking points concern the physical infrastructure required on either side of the Irish border to implement the proposals, including customs infrastructure, which the Irish govern-ment has consistently rejected, and consequences for single market integrity arising from both Northern Ireland leaving the EU's VAT area, and exemption from level playing field provisions.”

“Similarly, at face value, we see limited prospects of this deal passing the UK parliament. The proposals facilitate a hard form of Brexit, with the UK leaving the orbit of the EU customs union and single market in not much over a year.”

READ MORE: UK construction in ‘devastating’ downturn as Brexit deters building

Naeem Aslam, chief market analyst at ThinkMarkets, highlighted Johnson’s delicate balancing act between giving ground to the EU and reassuring Conservative MPs wary of keeping Northern Ireland tied too closely to EU rules.

“He needs to convince Eurosceptics to get this deal over the line. The biggest risk is that if he fails to secure enough backing from the parliament and the EU, an accidental no-deal Brexit is the only option,” said Aslam.

European members of parliament are also expected to outline their opposition to the plans on Thursday, while Labour opposition leader Jeremy Corbyn and Irish prime minister Leo Varadkar have already criticised the proposals.