Theresa May has put to bed rumours circulated by Boris Johnson back in September, and will officially begin the process of withdrawing from the EU by March 2017. Since the announcement Sterling has lost a cent against the Euro and US Dollar. The announcement whilst expected, opens fresh uncertainty for the UK economy and offers little reassurance on the Brexit debate.
Theresa May has stated that “We have voted to leave the European Union and become a fully independent, sovereign country. We will do what independent, sovereign countries do – decide for ourselves how we control immigration”.
To become a fully independent, sovereign country with border controls, the UK will likely have to depart from the single market entirely. The UK is unlikely able to access the benefits of the market without free movement of people, a message echoed by EU officials such as Donald Tusk and Jean Claude Juncker. It has therefore been assumed by many that Theresa May plans to adopt a ‘hard Brexit’ – a complete withdrawal from the EU and any subsequent memberships
The UK has a number of challenges ahead but equally a number of opportunities. Making the UK an attractive place for inward investment will likely take priority. Philip Hammond, the new Chancellor made a speech yesterday, providing fresh clues as to how he plans to handle the economy post-Brexit. The Chancellor plans to stimulate the economy through house-building and enhancements to public transport. Hammond has reiterated the need for fiscal policy but will not look to bring the UK into a surplus by the end of the decade.
Much of the Pound’s value moving forward will be determined by inward investment and economic data. Theresa May has made clear that the government will not offer a running commentary on Brexit negotiations, the new government must therefore stimulate the economy internally to avoid odds of a recession as well as keeping the UK attractive for foreign investment.
This week’s PMI releases and GDP estimates are more important than ever and clients holding Sterling should pay particular attention to today’s Construction PMI. Yesterday’s extremely positive manufacturing PMI provided some comfort for Sterling and could dictate how Friday’s manufacturing and industrial output figures perform.
Given the recent upward revision of the UK economy I am not expecting any shocks from Friday’s NIESR GDP estimates. However, in light of the UK’s deadlines for exiting the EU I am expecting further weakness for Sterling as we move ahead into October. With the official news of Article 50 and no clear plans from the new government, business confidence will likely falter in the weeks ahead which leads me to believe GBP/EUR exchange rates of 1.12-13 are plausible.
If you’d like to know more on how the news of Article 50 could impact your currency requirements, please call us on 01494 725 353 to discuss the timelines and potential outcomes of Brexit.
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