Brexit Bulletin: May's Deadline Sends Pound Near Three-Decade Low

Prime Minister Theresa May hints at a “hard” Brexit, causing the British pound to sink near a three-decade low

Foley: Brexit a Massive Wave of Uncertainty for Pound

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The British pound fell back toward the three-decade low it reached following the Brexit referendum after Prime Minister Theresa May hinted she’s readying for a “hard Brexit.” Sterling also declined against all of its 31 major peers. 

May yesterday used her biggest speech yet on the U.K. leaving the EU to signal she’s willing to surrender membership of the single market in return for more power over immigration, law-making and the budget.

She told her Conservative Party’s annual conference in Birmingham she will trigger two years of formal talks by the end of March, paving the way for the U.K. to go it alone by April 2019.

Parliament will be asked to convert all existing EU laws into U.K. legislation to provide certainty for business and investors. She also indicated she will ask fellow EU leaders to engage in “preparatory work” before she triggers Article 50 of the Lisbon Treaty, something they have so far refused to do.

While May rejected the notion the U.K. could photocopy the trade deals Norway and Switzerland have with the EU, she left many questions unanswered about what she will try to get out of the divorce and what new trading relationship she seeks.

“Although May does not like the ‘hard-soft’ distinction, this looks pretty ‘hard’ to us,” said Malcolm Barr, an economist at JPMorgan Chase.

Bloomberg’s Tim Ross and Robert Hutton give us a rundown of what we learned about Brexit in Birmingham yesterday.

Citigroup's Buiter: Hard Brexit Is Most Likely Outcome

Capitals and Companies React

European governments still sounded frustrated by a lack of detail and rejected May’s suggestion that they can now have informal talks.

“No negotiations without notification,” Raimundas Karoblis, Lithuania’s vice-minister for foreign affairs, told Bloomberg News. “The U.K. must say officially first what the Kingdom wants.”

Maltese Prime Minister Joseph Muscat, who will hold the EU’s rotating presidency in the first quarter, said his government will be “honest brokers for a fair deal,” but that single market access and freedom of movement “cannot be decoupled.”

Confederation of British Industry Director-General General Carolyn Fairbairn said while May had removed the question of timing, the prime minister had “accelerated an urgent need for answers on others” and warned “businesses cannot continue to operate in the dark in other areas.”

Sofia Charalambous, co-founder of Bathroom Origins, a distributor of bathroom supplies in Romford, England, said she is increasingly concerned about indications of a “hard” Brexit. All of the company’s products are imported from continental Europe, so she’s worried about the possibility of tariffs and red tape if the U.K. loses access to the single market.

“I don't think they have a clue what’s going on,” Charalambous said of the U.K. government. “It feels like we’re being led by the blind. It’s easy for them to say, ‘Deal with the rest of the world,’ but why can’t we still deal with our neighbors?”

Other Birmingham Broadsides

Chancellor of the Exchequer Philip Hammond dropped the government’s commitment to balancing the budget by the end of the decade to allow “carefully targeted” investment to cushion the economy. 

Read Svenja O’Donnell’s profile of the Quiet Man Next Door.

Trade Secretary Liam Fox cast some doubt on whether the U.K. will be outside of the EU by April 2019. “What we want is the best exit for the United Kingdom, not the quickest,” he said. “I wouldn’t put a timescale on it.”

Fox also suggested that leaving the EU’s customs union would not be a serious problem for the U.K. “Most businesses in the world are outside the European Union,” he said. “The United States is outside the European Union – it doesn’t seem to be seriously hampered in doing business with Europe because it’s not in the customs union.”

Brexit Secretary David Davis said the U.K. will bring down immigration after it completes its withdrawal. “The clear message from the referendum is this: we must be able to control immigration,” he said. “We will control our own borders and we will bring the numbers down.” 

And Foreign Secretary Boris Johnson said “any lingering gloomadon-poppers” should now accept the U.K. will be “more active on the world stage than ever before.”

On the Markets

Sterling fell after May laid out her timetable, while the weaker pound boosted the stocks of exporters.

U.K. factors had their best month in more than two years in September thanks to the cheaper currency, with IHS Markit’s monthly Purchasing Managers Index jumping to 55.4 from 53.4 in August. 

Meanwhile, Ernst & Young said the number of initial public offerings had slowed in the U.K. since the Brexit vote. It estimated there had been six listings in the third quarter, down from 13 in the previous three months.

And Finally...

There’s a new way keep track of all things Brexit

If you have a sneaking suspicion that the world of news keeps on turning each day once we publish this Bulletin, perhaps we could tempt you with a Twitter feed devoted to the twists and turns of the Brexit story?

With all due respect to the prime minister, Brexit now also means @Brexit – and we plan to make a success of it too. Follow us for up-to-the minute Brexit news every day.

 

 

 

 

 

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