City braced for turmoil over May’s ‘single market exit’
TRADERS were braced for further swings in the pound this week with Prime Minister Theresa May expected to confirm the UK will be leaving the EU single market. Her Brexit statement will come on the same day as the latest economic figures are likely to show a sharp pick-up in inflation fuelled by the falling pound.
Combined with the inauguration of Donald Trump as US President, the Brexit statement and inflation figures are expected to create a volatile market for sterling and shares.
May is set to give a major speech on Tuesday on Brexit. City lobbyists believe she could hint that the Government will pursue a transition deal on leaving the EU and before the UK has a full trade deal in place – but concede that controlling immigration and asserting the supremacy of British courts will mean dropping out of the EU’s free trade area.
The speech is likely to reiterate views she expressed earlier this month which led to the pound falling several cents against the dollar in the following days. Market indices measuring likely volatility in sterling spiked late last week when news of May’s speech was confirmed.
Lobbyists said she would echo remarks made by European politicians that pulling away from the European Court of Justice and the free movement of people means leaving the single market.
Iain Anderson, executive chairman of public affairs firm Cicero Group, said: ‘The sense is that we are not going to fall out with the rest of the EU over single market membership. We are not going to be in it.
‘If that’s the case then let’s get on with the conversation about the
transitional arrangements.’ Alex
Deane, a public affairs expert at FTI Consulting, said: ‘I think she will say we are coming out of the single market, are not afraid of negotiation and are getting control of our borders.’
Data out on the same day as May’s speech will show inflation surging to 1.5 per cent as falls in the pound feed through into consumer prices.
Howard Archer, chief UK economist at forecaster IHS Global Insight, said: ‘Inflation is expected to have been lifted in December by higher fuel prices as well as sterling’s weakness increasingly feeding through to cause retailers, services companies and manufacturers to lift prices.’
Prices of a wide range of consumer products have risen in the wake of sterling’s collapse with chocolate bar Freddo the latest example. Owner Mondelez is expected to lift the price from 25p to 30p.
Hopes were rising this weekend that Brussels could agree to a transitional deal for the City.
Leaked remarks from the EU’s chief negotiator Michel Barnier suggested the bloc wants a financial services deal.
‘There will need to be work outside of the negotiation box... in order to avoid financial instability,’ Barnier is reported to have said.
Nicolas Veron, a senior fellow at Brussels think-tank Bruegel, said European companies and politicians assume Brexit will be damaging and are preparing for some kind of impact.
Brexit financial risks ‘pale into insignificance compared to what the eurozone has been through,’ he added.
Bank of England Governor Mark Carney said last week that without a transitional deal the consequenes would be greater for Europe than for the UK.