UK: Hopes for transitional Brexit arrangement boost the pound - MUFG
|Lee Hardman, Currency Analyst at MUFG, notes that the pound has remained at stronger levels in the Asian trading session after strengthening sharply yesterday following UK Prime Minister May’s speech at the Confederation of British Industry’s annual conference.
Key Quotes
“Prime Minister May acknowledged calls from business leaders to avoid a “cliff edge” when the UK leaves the EU. She stated that “I understand that people don’t want a cliff edge, they want to know with some certainty how things are going to go forward. That will be part of the work that we do in terms of the negotiation that we are undertaking”. The comments have prompted speculation that the UK government will seek a transitional arrangement to preserve single market access for businesses until a free trade agreement has been finalised with the EU, which is likely to take longer than the two year withdrawal period permitted once Article 50 has been invoked.”
“A spokesperson for Prime Minister May has since declined to say whether the government will be seeking a transitional arrangement saying only that there’s a wide range of issues” that would need to be worked through during Brexit negotiations. However, the spokesperson did make it clear that the UK government will not be seeking to extend the Article 50 process beyond the two year period and reiterating that Prime Minister May wants the UK to leave the EU by the end of March 2019 as the latest point.”
“A transitional arrangement seems like a reasonable scenario to us as it would allow the UK and EU more time to reach an agreement on a comprehensive free trade agreement which would eventually replace a temporary transitional arrangement. It would help to reduce economic disruption and provide greater clarity for businesses easing the Brexit transition. However, a transition arrangement may prove unpopular with the UK public who voted to leave the EU. Some compromises such as continuing to pay into the EU budget to preserve single market access would likely be required during the transition period. More importantly, it is not known whether the EU would accept a transition arrangement.”
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