Sterling has hit its highest level against the dollar since June last year after the Prime Minister laid out government plans for a hard Brexit to get the “right deal for Britain”.
In a highly-anticipated speech earlier today, Theresa May set out a 12-point plan for the UK’s exit from the European Union (EU) – see below – including leaving the single market and that a final Brexit deal would be voted on in Parliament.
May also announced that the government would push for a customs agreement with the EU and target the “freest possible” trade in goods and services between Britain and the EU member states.
And she wants to guarantee the rights of EU nationals living in Britain, and Britons living in Europe, as soon as possible, and to maintain the common travel area with Ireland.
May said: “We are leaving the European Union, but we are not leaving Europe. And that is why we seek a new and equal partnership – between an independent, self-governing, Global Britain and our friends and allies in the EU.
“Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave.
“No, the United Kingdom is leaving the European Union. And my job is to get the right deal for Britain as we do.”
Sterling jump
The pound was up 2% against the dollar following the speech at $1.2293 – its biggest increase since 20 June last year – and 0.7% up on the euro at €1.1445. This improvement, however, caused the FTSE 100 to drop 0.58% to 7,284.
Thomas Light, head of research at independent investment research firm Faraday, described May’s desire for “frictionless” trade without compromising border control as “ambitious” and set the stage for a “titanic round of negotiations.”
Light added: “Theresa’s desire to have her cake and eat it has sent cable [the sterling/US dollar currency pair rate] surging towards the 1.2300 marker, closing Monday’s gap.
“For cable, today’s close is crucial. Should prices close above 1.2200 it is likely to signal a short-term bottom.”
‘Phased implementation’
The Chartered Insurance Institute (CII) had called for the government to set a defined transitional period over Brexit, but was left wanting after May announced a “phased process of implementation” period following negotiations.
CII managing director of engagement Keith Richards said: “Although the government has not offered the defined transitional period that we were asking for, it has acknowledged the risk of an economic and legal ‘cliff edge’ and the impact it could have, and proposed a ‘phased period of implementation’ to give firms that much needed breathing space to consider what the new EU-UK partnership could mean for them.
However, Richards observed that May had neglected to mention anything about time limits.
The Investment Association (IA) also welcomed the importance of avoiding a cliff-edge for financial services being provided to clients in the EU, and the phased implementation period for the new trade deal with the EU.
But, IA chief executive Chris Cummings added: “Much work is needed to ensure that the terms of the future relationship with the EU safeguard the interests of savers and investors throughout the world who make use of Europe’s pre-eminent asset management centre in the UK.”
The IA also noted that 11% of the UK asset management sector is made up of EU workers and welcomed the PM’s urgency in providing certainty for such individuals.
“The asset management industry relies on the UK remaining open and attractive to global talent,” Cummings added.
‘Uncertainty and change’
Lombard Risk chief executive Alastair Brown approved of the clarity given by May on the negotiating position of the government and the confirmation that exiting the EU is to be interpreted as a “comprehensive exit”.
However, he added: “This still leaves our clients facing uncertainty and change. While regulators globally are united in their objectives, they are failing to harmonise their approaches. The Prime Minister’s speech today confirms this ongoing variable to the regulatory landscape.”
Brown added that negotiating separate trade agreements would be “time consuming and complex”.
He said: “The key issues especially with EU are not just about securing tariff-free access, indeed ‘frictionless’ access as the Prime Minister has said. For our financial clients, it is also about the regulatory and compliance requirements that UK firms will have to adhere to in each of the markets that we trade with in future.”
The impact on UK pensions
Elsewhere, the Pensions and Lifetime Savings Association (PLSA) outlined three three elements needed to ensure Brexit worked well for pensions in the UK: a robust economy, the right regulation and a strong financial services sector.
PLSA director of external affairs Graham Vidler added: “If the economy weakens, it will make it harder for sponsoring employers to keep DB schemes open and reduce the funds individuals can afford to put into DC pensions – but these risks can be reduced if the government addresses the points we raise.”
Vidler said the PLSA welcomed May’s commitment to set up transitional arrangements to reduce any economic disruption due to leaving the single market.
He added: “While it is not yet clear whether EU regulation, as a result of establishing equivalent rules for financial services, will encompass pension funds, we will be arguing strongly that EU rules on solvency requirements for DB pension funds should not apply to pension funds that only operate within the UK.”
May’s 12-point Brexit plan
– Provide certainty about the process of leaving the EU
– Control of our own laws
– Strengthen the Union between the four nations of the United Kingdom
– Maintain the Common Travel Area with Ireland
– Brexit must mean control of the number of people who come to Britain from Europe
– Rights for EU nationals in Britain and British nationals in the EU
– Protect workers’ rights
– Free trade with European markets through a free trade agreement
– New trade agreements with other countries
– The best place for science and innovation
– Co-operation in the fight against crime and terrorism
– A smooth, orderly Brexit
