The Conservative Party conference was always likely to be a tense affair given the ongoing internal debate and public disagreements over Brexit.
We take a look at some of the key moments in the conference – and the headline-grabbing fringe event with Boris Johnson – to see what the announcements might suggest about the future of Brexit and the pound.
May inspires loyalty as well as dissent
There may have been some very public criticisms and high profile resignations in government during the Brexit process but there are still many in the party willing to stick with Theresa May. Speaking about the Chequers plan, Chancellor Philip Hammond said it would deliver an immediate “deal dividend” to the economy. International Development Secretary Penny Mordaunt and Transport Secretary Chris Grayling also voiced their support. Brexit Secretary Dominic Raab may have some reservations but conceded that there had to be “compromises” with the EU. It may not be all he wanted, but Mr Raab said the government’s deal was one that many would have “bitten his arm off” for before the referendum. A greater show of unity within the government would likely prove helpful both for the final stage of Brexit negotiations and to provide some stability for the pound.
Despite rumours, there was no direct leadership challenge
The fringe event included many speakers critical of Theresa May’s leadership of the party and handling of Brexit, but despite figures such as Jacob Rees-Mogg waiting in the wings, there was no direct bid for the top job. Ruth Davidson once more ruled out a challenge, stating her ambition was on the role of First Minister of Scotland. Boris Johnson’s speech attacked the Chequers plan. He spoke at length about housing – a key issue for the electorate – and indulged in some tub-thumping words, calling for a back to basics approach to Tory values including free enterprise and tax cuts. He concluded, however, with a plea to support the PM. The show of unity, however fragile, would be good news for the pound. A change in leadership would mean greater uncertainty, possibly even a general election, and this could cause even greater currency volatility during the final months of the Brexit process.
Beyond Brexit – what lies ahead for business?
The chancellor highlighted the possibility of a new digital services tax to ensure digital and e-commerce giants pay their fair share of the cost of public services. The tax is part of a programme to “regenerate capitalism.” Hammond also rejected claims that the Conservatives had turned their back on business with their Brexit plans. He announced the government’s intention to increase access to science and technology courses and spend about £30m on encouraging big business to mentor small firms. His plans also included a £125m package allowing large employers to transfer up to 25% of their apprenticeship levy funds to businesses in their supply chain from April next year. The final day of the conference coincided with the news that the UK GDP grew by 0.5% in the third quarter, but there was a slowdown in the services sector which may be cause for concern based on the Chequers plan which has more of a focus on the export of goods than services. The service sector plays a major role in the UK economy, and a significant dip could cause problems for the economy – and by extension, the pound – in the future.
May’s speech offers some new policies on everything but Brexit
The government’s plan for an end to free movement had been leaked prior to Theresa May’s keynote speech at the conference, but there were some fresh announcements. The address began with a rousing introduction from Attorney General Geoffrey Cox which concluded with a call for the party to “unite behind the Prime Minister and ensure that the decision of 23rd June 2016” was upheld. In her speech, the PM highlighted a new NHS cancer strategy, confirmed that the fuel price cap would remain and spoke about the need to end austerity. On Brexit, there was nothing new. She reiterated her intention to honour the result of the referendum and again refused to rule out the idea of a no-deal Brexit that is worrying the financial markets. She ruled out any deal that meant de facto membership of the EU or the possibility of leaving Northern Ireland under the jurisdiction of the EU. These are major sticking points in the negotiation and despite the optimistic tone of May’s speech, focussed on security, freedom and opportunity, there was no new detail. The primary aim of the speech seemed to be to regain control of a divided party, rather than laying out a clear vision of Brexit. Unity in the government may make the UK’s position stronger at the negotiation table, as EU officials have been watching the drama unfold across the Channel.
What next for the pound?
The ups and downs of the Brexit process have cast a shadow over the pound since the referendum result in 2016. The key issue weighing on the pound has been uncertainty over how many aspects currently playing a vital role in the UK’s economy, including free trade and movement. The Conservative Party conference did not deliver any new details, and while the PM was resolute in her statement – “I will not let [the British electorate] down” – internal forces within the party may test that resolve again before the negotiations are complete. In the meantime, the pound is vulnerable to the speculation about the outcome and, depending on whether further clarity can be achieved, may even see greater volatility as the March 2019 deadline approaches. Financial markets look for certainty. The PM may have done enough at the conference to see off the immediate leadership challenge but we’re unlikely to see the end of what the Chancellor described as “lurid predictions from the prophets of doom” about a no-deal Brexit, or a complete curbing of brewing leadership ambitions within the party.