GBP/INR is retreating from weekly highs in early trading on Wednesday. At the time of writing, one British pound buys 94.713 Indian rupees, down 0.15% as of 6:45 AM UTC. The pair broke above 95.00 by the end of Tuesday but failed to consolidate above that level.
The sterling started to decline after the Internal Market Bill passed the vote in the UK’s House of Commons. The new bill gives ministers the power to override the current treaty with the European Union, even though European leaders threatened that Britain should be ready for the worst if it ignores the current Withdrawal Agreement. Previously, ministers admitted that the Internal Market Bill breaks international law. However, UK Prime Minister Boris Johnson said that it was needed to maintain the kingdom’s unity.
Now the bill has to pass through the upper house of the UK parliament and may suffer changes. It’s worth mentioning that Johnson’s Conservative party doesn’t have a comfortable majority in the House of Lords.
The bill aims to protect free trade between the UK’s four nations after the divorce. Johnson said that the new document was necessary to maintain free trade specifically with Northern Ireland and would only be used if negotiations on a border solution with Europe fail. On the other side, the EU wants some border control between Britain and Northern Ireland, so that the goods couldn’t move freely to the EU’s Ireland.
UK GDP Shows Record Contraction in Q2
Despite the pressure, the pound might find some support in GDP data that was released just recently. The UK economy fell by a record 19.8% in the second quarter of the current year. Still, the decline is smaller than the initial expectation of a 20.4% drop. The record decline has to do with the COVID pandemic and the lockdown imposed in mid-March. The UK has experienced Europe’s highest death toll from the new coronavirus.
The economy has bounced back since Johnson’s government eased the social distancing measures, but the number of cases is increasing again as we enter the fourth quarter. The government had no choice than to go back to a partial lockdown.
