Brexit Monitor No.19: Theresa May 'crowned' as new Prime Minister
Today Theresa May was 'crowned' as new Conservative party leader as Andrea Leadsom pulled out of the leadership and in a press conference Prime Minister David Cameron announced he will step down on Wednesday. This means that political chaos is waning and the UK can spend time preparing the difficult withdrawal negotiations. This was welcomed by markets .
Theresa May repeated that 'Brexit means Brexit' and that there will be no early general election or a second EU referendum. She also said ' we are going to make a success of it' .
The next big question is when Theresa May will trigger Article 50. She has previously said around year-end this year . The EU is likely to push for the UK to trigger it sooner as the UK leadership crisis has now ended.
Chancellor of the Exchequer George Osborne said today he wants to begin negotiations with the North America Free Trade Agreement (NAFTA) bloc (US, Canada, Mexico) on a free trade deal.
Tomorrow's ECOFIN meeting will attract attention as the EU finance ministers will discuss whether to punish Spain and Portugal for not meeting their budget targets or not. For the EU, it is a difficult balancing act between enforcing fiscal rules and making a problematic political situation for the EU worse following the UK's decision to leave the EU. Today Eurogroup chairman Jeroen Dijsselbloem said that it is possible to give 'zero-euro fines', according to a Bloomberg story.
Although not officially on the agenda, the EU-Italy negotiations on recapitalisation of Italian banks are set to continue. While Italy wants to spend public money, the EU wants Italy to deal with the problem within the existing rules.
We expect Bank of England to make a precautionary 25bp cut from 0.50% to 0.25% on Thursday. BoE Governor Mark Carney was very dovish in his recent speech, which we interpreted as a preannouncement of monetary policy easing. Since he said that the full new economic projections of a Brexit would not be available before August when the next Inflation Report is due and that he considers the July and August meetings as a 'package', we think the Bank of England will ease further in August, possibly also using unconventional tools.
Author
Danske Research Team
Danske Bank A/S
Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.
