Good morning.

Alan is travelling this morning, so forgive me for dragging your attention across the Atlantic to where the realities of Brexit are starting to hit home in increasingly ugly fashion.

Sterling has hit a new 31-year low again versus the dollar today, the fourth straight trading day on which we’ve been able to trot out that headline. Markets are finally absorbing the implications of a divorce settlement that will leave the U.K. needing to negotiate its trading relations with the EU from scratch, and from a very weak position. CFTC data last week showed a big rise in the number of “short” positions in sterling, reflecting expectations of further declines.

Senior ministers, from Theresa May downwards, have indicated over the last week that they will leave the Single Market, raising the prospect of tariffs and customs barriers that cannot help but do profound harm to the welfare of both U.K. and European workers (the dollar has made tidy, if less spectacular gains against the euro too as the narrative unfolds.

The sell-off has gone beyond what could normally be attributed to the classic “shock absorber” effect of the exchange rate: U.K. government bonds still served as a safe haven in the aftermath of the referendum, have started to fall sharply, as investors price in higher inflation (not least through rebounding energy prices) that could stop the Bank of England from supporting the economy with another interest rate cut.

The latest leg down has been caused by the high-handed way in which May and her Brexiteer ministers have rejected calls this week for parliament to be allowed to scrutinize the settlement she agrees with the EU–in sharp contrast to the Brexiteers’ emotional attachment to the sovereignty of parliament before June 23rd.

But it would be unwise to see this week’s government position as set in stone. It is more likely the case that May rode to power pledging to deliver the referendum mandate: and while no-one knows how sincere her pledge was (she campaigned half-heartedly for Remain under David Cameron), she cannot be seen to be undermining the vote–yet.

A few more months–or even only weeks–of carnage in the markets would, however, give her cover to retreat from this position (should she so desire), and give the pie-eyed optimists of the Hard Brexit camp enough rope with which to hang themselves, politically speaking.

This particular member of the nation of shopkeepers still trusts his compatriots to reverse their first decision of June 23rd, when it dawns on them that a hard Brexit is only making the country poorer. But it will take the full power of the foreign exchange and bond markets to make it happen. The markets were always “Project Fear”‘s most potent weapons, and it’s tempting to blame their complacency for allowing the vote to go the way it did. Such is their power that–like the U.S. after Pearl Harbor–they can be seriously late to the war and still swing it their way.

More news below.

Geoffrey Smith