Brexit: Actual negotiations may have to wait - Danske Bank

Today the UK government announced that it will trigger Article 50 next Wednesday. Mikael Milhøj, Senior Analyst at Danske Bank, points out that actual negotiations may have to wait until after the elections in Germany. They see a potential for further weakness in the pound. 

Key Quotes: 

“The EU council is expected to meet 4-6 weeks later to discuss and adopt Brexit guidelines (according to EU sources it is too early to discuss the Brexit guidelines at the EU council meeting on 6-7 April). It seems likely the EU leaders will wait to meet until after the second round of the French presidential election on 7 May.”

“As the UK wants to control EU immigration, we are heading for a so-called ‘hard Brexit’ with the UK leaving the single market. Eventually we think the EU and the UK will reach a deal corresponding to the EU-Canada deal (possibly slightly more comprehensive given the bigger trade volume between the UK and EU).”

“The triggering of Article 50 starts the formal Brexit negotiations. However, given that we do not know the future EU leadership (the political leaders of France and Germany), actual negotiations may have to wait until after the German election in the autumn. Also we will likely have some negotiations about how to negotiate to begin with, as the EU wants to settle the divorce bill (which it says could be as high as EUR60bn) before discussing the future relationship while the UK government wants to discuss the two things simultaneously. 

“GBP depreciated only slightly after the announcement, as markets were already expecting the UK to formally trigger Article 50 next week. We still see potential for further GBP weakness in the near term and after the triggering of Article 50.”