GBP: PM May sends clearer signal that UK likely to exit the single market - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that the pound has been one of the weakest currencies during the Asian trading session undermined by comments from UK Prime Minister May which have reinforced “hard” Brexit concerns.

Key Quotes

“In her first interview of 2017 with Sky News, Prime Minister May indicated that Britain will leave the EU single market and is not interested in trying to “keep bits of membership”. Instead, she wants a bespoke British deal with the rest of Europe that delivered the “best possible deal for UK companies to be able to trade in and within the EU and European companies to operate and trade within the UK”.”

“The comments should not really come as much of a surprise as Prime Minister May had already clearly signalled last year that controlling immigration and regaining control over domestic laws by ending the European Court of Justice jurisdiction were red lines in upcoming negotiations, both of which are seen by Europe as key pillars of maintaining single market membership. The FT has reported that Chancellor Hammond is still arguing the case that Britain should seek to remain at least partially a member of the customs union.”

“Prime Minister also fought back against recent criticism that the government’s thinking has been muddled. She stated that the government will set out some more details in the coming weeks as “we look to triggering Article 50”. So far it looks most likely that the government hopes to negotiate a bespoke free trade agreement which could be coupled with a transitional phase until negotiations are finalised. The desired details of the bespoke free trade agreement remain unclear. The uncertainty and fear of harder Brexit are expected to remain heavy weights on the pound. However, we still believe the scope for further pound weakness is more limited now given it has already adjusted sharply lower in recent years.”