In her speech today PM Theresa May outlined 12 key objectives in negotiating the exit deal for the UK.
She has already realised that being part of the single market is not an
option as long as the UK wants to control immigration from other EU
countries. Instead Theresa May wants to replace today’s membership with a
new partnership including a new free trade agreement with EU and
continued cooperation in certain areas. Although the deal will be
negotiated within the 2-year time frame, which in reality means 18
months as all EU-members must ratify the deal, PM May opened up for a
phased process, a transitional period for implementing it. Moreover she
was very clear that the vast financial contributions to EU from Britain
will end after the divorce. She also warned against a punitive deal that
punishes Britain. It would also be bad for the EU as it threatens
future exports to the UK. Moreover it could force the UK to change the
basis of its economic model, which probably means more aggressive tax
The GBP reacted positively on today’s speech and as we see it there are four reasons for this changed sentiment:
- The Parliament will have the final say on the new deal.
- A phased approach probably means a softer Brexit.
- The speech was given in a constructive tone.
- Current EU-law will become British law which will make the transition smoother.
the threats in today’s speech UK’s position in negotiations will be
very weak once exit negotiations under the treaty starts. There
is only a two year period and to us the UK has the most to lose if
negotiations fail. Moreover, the two year period will create a lot of
uncertainty which is likely to harm the British economy and in
particular the important British financial industry.
Consequently we view today’s rally in the GBP as temporary and expect the sterling to weaken again.
We would not be surprised if comments from the EU as well as the UK
sound very negative in the initial phase of the negotiations and during
the exit process.