18 March 2019Reading time 3 minutes

Two strikes, you’re out

What next on Brexit, as UK speaker rules out a third try for PM Theresa May? James Smith has some ideas...

Now what?

Our UK economist, James Smith, must wish he was covering somewhere a little less exciting these days, as the UK Parliament's speaker John Bercow, effectively ruled out a third try for Theresa May at getting her draft exit bill over the line this week. While James didn't think that it would pass this time anyway, even with some cracks emerging in the eurosceptic European Research Group (ERG), this new twist adds some further complications to the arithmetic of the probability of a no deal exit. 

For all the gory details, check out James' latest note. But the short version seems to be that we will now move to indicative votes on what Parliament might actually be prepared to support, and if (still seems a long shot) any of these gets a majority, then it sets up the UK for a longer delay while preparations for this are made. 

The one option that could quickly be sorted out, would be if the UK abandoned its attempts to leave the EU Customs Union for a sort of Brexit in name only (BINO), which would remove all the Irish backstop issues and could fairly quickly be signed up by both the UK and EU. But we'll just have to see how the voting falls. 

Australian rates

Yet another story today raises the prospect of some rate easing relief for the Australian economy, with a "per capita" recession being invoked as a substitute for the real thing (which hasn't happened since 1991). Forecasters have been rushing to switch their view from "rates on hold for a long time but with an eventual hike", to "rate cuts" ever since RBA Governor Lowe indicated that the risks to the outlook were two way. 

The latest suggestion that a per capita recession adds to arguments for a cut, seems a bit flimsy in our view. But if you accept that it advances the case for a rate cut, you should probably also acknowledge that since the end of last year, 3-m bank bill swap rates are down almost 25bp - equivalent to a cut. Now it simply remains for banks to pass on those easier funding rates in lower business lending rates and mortgages, just as they raised them when BBSW was rising amidst flat RBA cash rates. 

I don't think this will be long in coming. And when it happens, it does most of the RBA's work for it. For now, we're sticking with "no cuts" for the time being. Though we'll be reading the minutes of the last meeting due out shortly to see if we need to revise this view. The risks to our forecast do seem to be shifting to the downside.  

Asia Day ahead

Besides the RBA minutes, Australia also offers us house price data for 4Q18. Our rates forecast will be hurt by any sign that the rate of house price decline is accelerating quarter on quarter, and will be strengthened by anything that suggests the decline is moderating or remains orderly. 

Otherwise, most of today's interest will lie in G-7 releases. UK labour market data, Germany's ZEW survey and US durable goods orders are all on the calendar.