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Yesterday evening, Theresa May announced there had been “collective” cabinet approval of the draft withdrawal text. This paves the way for an extraordinary European Council meeting on 25 November to sign off the deal, followed by a vote in the UK parliament likely before the end of the year. There remains a big question mark over whether the UK parliament will approve the deal. In her statement, Theresa May predicted there would be difficult days ahead, expecting a political backlash, and warned that it was either her deal, no deal or “no Brexit at all”, the first time she has mentioned the possibility of reversing Brexit, in what amounts to a thinly-veiled threat to the euroskeptic rebels in her party.

Brexit Minister Dominic Raab and three other ministers resigned in protest against May’s plan fuelling a selloff in the pound which was already struggling to gain traction after May said on Wednesday she had won over her divided cabinet after a five-hour meeting.

The draft 585-page withdrawal treaty was published in full last night. It includes the agreement on citizens’ rights, the GBP 39bn financial settlement, the 21-month status quo transition where the UK would apply EU law in full but without a say (and the possibility of a one-off extension of the transition period to an as yet unspecified date “20xx” by mutual agreement), and the Irish border “backstop”. The Irish border “backstop” ties the UK to a customs union with the EU and will come into force when the transition period ends, unless and until the future relationship removes the need for it. The “backstop” includes “level-playing field” provisions on state aid, competition, tax, and social and environmental standards. The “backstop” has no end date, potentially determining the UK’s relationship with the EU for many years to come, and a joint committee would decide when it was no longer needed. Northern Ireland would remain aligned to EU single market rules and regulation in agricultural and all products, meaning regulatory checks in the Irish Sea, although the UK has made unilateral promises to minimize divergence with EU rules for goods.

Yesterday, the UK and EU negotiators reached an agreement on a draft withdrawal text at a technical level. Crucially, the UK cabinet will meet today at 14:00 GMT to decide whether to approve the draft text. If the cabinet approves it, this would pave the way for an extraordinary Council summit later this month to sign off a deal. A rejection of the draft text by the cabinet today would mean it is back to the drawing board. We expect the cabinet to give its approval today, but it will be important to watch whether it triggers further ministerial resignations, which would further destabilize Theresa May’s position. The draft withdrawal text has not yet been published. Reportedly, it includes a UK-wide customs union “backstop” but does not include the Northern Ireland-specific “backstop to the backstop” that the EU had been pushing for. Whether there is a majority in the UK parliament for the agreement will depend on the detail, which will only become clear in the coming hours, days and weeks.

Annual inflation rate in the United Kingdom was flat at 2.4% in October of 2018, the same as in September but below market expectations of 2.5%. Prices slowed for transport and food but rose faster for housing and utilities and recreation and culture.

Year-on-year, prices rose at a slower pace for transport (5.4% vs 5.6% in September), restaurants and hotels (2.4% vs 2.5%), and food and non-alcoholic beverages (0.9% vs 1.5%, the lowest since February of 2017). Prices declined more for clothing and footwear (-1.1% compared to -0.4%) and were unchanged for miscellaneous goods and services (vs -0.3%). On the other hand, inflation accelerated for recreation and culture (3.2% vs 3%); housing, water, electricity, gas and other fuels (2.9% vs 2.7%), namely gas (7.6% vs 5.5%); and furniture, household equipment and maintenance (0.7% vs 0.5%).

The consumer prices index including owner occupiers’ housing costs rose by 2.2% in October, the same as in September.

The annual core inflation rate, which excludes prices of energy, food, alcohol and tobacco, was flat at 1.9%, the same as in September and in line with market expectations.

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