Brexit Briefing: Accelerate or Take the Handbrake Off?
- For all the talk of ‘accelerating’ Brexit talks, neither side seems willing to go first.
- Bank of England’s Carney says that it is in the EU interest to have a transition Brexit agreement.
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GBP slipped lower mid-morning in Europe as the war of words between the European Union and the UK looked set to continue, despite both sides’ conciliatory words at a dinner in Brussels on Monday. GBP/USD lost over 0.50% and traded below the 1.31800 level, giving back gains made in the last few days. All this despite a UK inflation print of 3%, a five-and-a-half year high, that is likely to force the central bank to hike rates at the next MPC meeting on November 2.
At Monday’s dinner both UK PM Theresa May and European Commission chief Jean-Claude Juncker agreed that Article 50 negotiations should “accelerate over the coming months.” However, Tuesday mid-morning both negotiating teams seemed to dab the breaks, pointing out that they had made sufficient concessions to push talks forward and that the other side should make the next move.
The EU’s negotiator Michel Barnier said that while the EU are prepared to press the accelerator it ‘takes two to accelerate pace’ and that the “clock is ticking fast”, an upgrade on his “clock is ticking” comment that drew much attention back in mid-July. On the other side of the table, UK Brexit minister David Davis said that he hoped that EU leaders would use this week’s summit to give his counterpart “an expanded mandate on Brexit talks,” while UK Foreign Minister Boris Johnson added that he hoped the EU would discuss the proposed transition period adding “if we’re going to get on to that kind of question, now is the time for them to do so.”
Chart: GBPUSD Three Hour Timeframe (September 29 – October 17, 2017)
In addition, the Bank of England Governor Mark Carney, normally an apolitical position, warned that EU banks in the UK were not up to speed on Brexit planning in a speech to the Treasury Select Committee. Carney said that EU banks had done much less preparation for Brexit than UK-based banks and that it is absolutely in the EU’s interest to have a transition Brexit agreement. He added that no assumptions should be made about the BOE authorizing all of the branches of EU banks currently active in Britain and that if the UK leaves the EU without a deal, “the EU will be short of financial services capacity in the short-term.”
European Union leaders are currently discussing the latest Brexit developments and are expected to announce if sufficient progress has been made to open talks on a future trade relationship at the end of the week.
At the current rate, unless someone is prepared to release the handbrake and not just rev the accelerator, Brexit talks are likely to stall.
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--- Written by Nick Cawley, Analyst.
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