Theresa May Strikes $1 Billion Governing Deal With Northern Irish Party

UK Prime Minister Theresa May has struck a so-called confidence and supply deal with Northern Ireland’s Democratic Unionist Party, one which will give the Conservatives sufficient votes to pass the Queen’s Speech and the budget, while Northern Ireland will get an extra €1 billion over two years as a result of the deal.

Together, the Conservatives and the DUP will have 327 MPs, representing a tiny but sufficient working majority in the 650-member House of Commons. The two parties however do not have a majority in the House of Lords the upper chamber, which plays a revising role on legislation.

The deal was preannounced on Monday morning, and was finalized at Downing 10 around noon on Monday, just over two weeks after talks began following the June 8 election. Arlene Foster, the DUP leader, held talks with Theresa May from 10.30am. Photos showed Gavin Williamson, the Conservative chief whip, and Sir Jeffrey Donaldson, the DUP chief whip, signing copies of the agreement.

According to the DUP's Arlene Foster, who announced the agreement with the Conservatives on support for the government in parliament, the two parties have "focused on enhancing prosperity, strengthening the union and working towards Brexit" and according to the Guardian have agreed to:

  • Keeping the triple lock for pensions
  • Keeping winter fuel payments for all pensioners
  • Keeping defence spending at 2% of GDP
  • Extending the armed forces covenant to Northern Ireland

There is also a financial package, she says. It is worth £1bn over two years. There will also be “new flexibilities” in terms of how £500m already committed to Northern Ireland can be spent, she says.

  • Northern Ireland to get an extra £1bn over two years as a result of the deal, Foster says.

Foster also says the government and the DUP will set up a coordination committee to oversee implementation of this deal.

The full text of the deal can be found here.

Finally, what does the deal mean for cable: according to Viraj Patel, a currency strategist at ING Groep NV in London, the pound’s move higher on news that U.K. Prime Minister Theresa May has struck a deal with Northern Ireland’s Democratic Unionist Party is unlikely to be sustained.

“Wouldn’t necessarily expect the pound to move much higher from current levels on this story,” he says, cited by Bloomberg and adds that the story itself “is pretty much priced in, the drop from today’s high may have been due to some doubts creeping in”

One of the supporting factors for the pound “is the fact that it is trading at a discount to what short-term rate spreads would suggest and with political clarity, and the certainty now that we have a relatively stable government, the focus can switch to what really matters: BOE policy in the short-run and Brexit in the long-run.”

Patel foresees declines in sterling, forecasts cable at 1.24, EUR/GBP in the 0.88-0.90 range this summer.