May, Corbyn Gun for Brexit Transitional Deal at CBI Conference
- Prime Minister May reaffirms committment to agree a transition deal with the EU as soon as possible
- Corbyn adds pressure saying issue of transition deal agreement “more uncertain and precarious than ever”
- US Commerce Secretary Wilbur Ross says US-UK should seek free trade deal once Brexit takes place
The British Pound has started the new week on the front-foot, as it recovers from the technically-inspired sell-off witnessed in the wake of the Bank of England's November policy update in which interest rates were raised 0.25%.
This week there are no major set-pieces to come from the Bank of England while the data calendar is largely empty; leaving markets free to focus on the nuances of Brexit.
Indeed, Thursday sees negotiators return to the table in Brussels to hammer out the way forward and an update due on Friday will most likely be the week’s key event for Sterling.
But, May’s words to businesses in London will act as a precursor to the event and markets could choose to linger on what she has to say with Friday in mind.
May told delegates in London's docklands progress has already been achieved in Brexit negotiations and is "pleased there has been further progress on citizens rights.”
She hints that issues of trade and a transitional relationship will be agreed imminently by welcoming, "the beginning of internal discussions amongst the EU 27 about the future relationship."
May says she has been determined to give industry and business as much clarity as possible regarding the outlook and "we should be excited by the possibilities this new relationship offers”.
The Prime Minister reiterates an implementation period is important, confirming - as she did at the same conference one year ago - that there should be no cliff-edge for businesses when Brexit takes place.
"Downside risks for the pound would increase more significantly if the Brexit negotiations fail to make more progress in the coming quarters. The UK government has clearly stated that the value of transitional arrangement will diminish overtime. Therefore, the longer that time goes by without a transitional arrangement, the more likely a more disorderly Brexit adjustment will become," says Lee Hardman, Currency Analyst with MUFG.
May says the UK will seek agreement on transitional period as early as possible, but, the UK must be allowed to negotiate on trade with other countries during this period.
Recall May’s address to the CBI in 2016? Sterling benefited greatly after the PM told delegates there were issues that "need to be looked at" with regards to Brexit and that she understood businesses did not want "a cliff-edge".
The promise of avoiding a cliff-edge was picked up on by markets and Sterling rallied as the prospect of a transitional Brexit deal became more likely.
“The road to a Florence Deal must be swift and have no deviations. Every opportunity must be taken to reduce uncertainty for the sake of jobs and the economy,” says Carolyn Fairbairn, CBI Director-General in response to May’s address.
From a Sterling perspective, May's renewed promises to businesses that a transitional period is a priority is positive as it suggests the dreaded no-deal scenario will be avoided.
“Brexit is a risk but everything points to a soft exit that will limit the damage to the U.K. economy. For this reason, we are looking for additional losses in EUR/GBP,” says Kathy Lien at BK Asset Management.
Cliff-Edge Angst
Despite the assurances offered by May on a transitional agreement, you would be mistake for believing it might never actually come. Here we are one year since the promise to avoid a cliff-edge was first made and the angst being felt by businesses is still there - businesses are wary of the UK enduring a no-deal Brexit which is pretty much what a cliff-edge Brexit is.
“To Whitehall and Brussels, the Bundestag and the Assemblée Nationale, I say this: Now, more than ever, business is looking for political leaders across Europe to step up,” Paul Drechsler, CBI President, told delegates when he opened the conference.
“Brexit is only 508 days away. But for many businesses, their alarm clocks are set even earlier than that. They’re set to the moment they will actually enact their contingency plans,” Drechsler adds.
The CBI say that by March 2018, 60% of firms will have triggered their contingency plans if there are no transitional arrangements in place.
Currently, the CBI see one major challenge – not Brexit itself: “we’re 100% committed to making a success of it,” says Drechsler. “We need a single, clear strategy. A plan for what we want, and what kind of relationship we seek with the EU."
Corbyn Turns up the Heat
In his address to the CBI conference, leader of the opposition, Jeremy Corybn says it is “simply not good enough” to delay agreement on a transitional deal adding that “time is running out” on Brexit.
Corybn says the situation regarding Brexit, from a business perspective, is “more uncertain and precarious than ever," and he warns “firms are deciding now whether to invest in the UK, and guarantees are needed now.”
US Commerce Secretary Wilbur Ross is also at the conference and tells delegates he backs a post-Brexit US/UK free trade deal. "There should be a FTA between us once the UK is on its own,” says Ross.
At the time of writing the Pound-to-Euro exchange rate is quoted at 1.3148 having opened the week at 1.1260. The Pound-to-Dollar exchange rate is at 1.3113 having opened the week at 1.3079.
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