Tomorrow the PM Theresa May will give her Brexit speech detailing what the UK plans to achieve from its divorce with the EU. With immigration high on the list, it’s looking increasingly likely that the UK will leave the customs union and look to secure trade deals with the rest of the World.
The question of ‘soft’ or ‘hard’ Brexit has been a key theme in the Brexit debate, and whilst May purposely avoids these terms, markets certainly do not. The Pound has slumped to decade lows against the US Dollar, and has lost 4 cents against the Euro since the beginning of the new year.
Further comments from the Chancellor Phillip Hammond have only served to protect the UK, his promise to cut corporate tax to entice European businesses post-Brexit lends its way further to the belief that the UK will not retain single market access, not least in the traditional sense.
Confirmation from the PM tomorrow will seal the deal on any rumours and as such the Pound could be in for further movements this week. With the outcome of the Supreme Court case also due this week, the Government could be allowed to push ahead with May’s plans without scrutiny from Parliament.
So what does this mean for the UK and more specifically the Pound? If Theresa May goes ahead with a clean break from the EU, the Pound could fall to new lows against the Euro and US Dollar, with the uncertainty set to continue for the duration of Article 50.
Her recent comments centre around a special relationship with the EU, outside of the customs union but very much a part of it, if negotiations go well over the coming months this could strengthen the Pound’s position, but is unlikely to materialise as it would compromise the EU’s four freedoms.
It then becomes a question as to what the UK plans to do once it leaves the customs union, the option of trade deals elsewhere is on the table, but may require years before anything becomes concrete.
May’s hard Brexit approach could have damaging affects on the UK economy, and could push the Pound to new lows against most major counterparts. While this may help British exports, higher consumer prices as a direct result of a weaker Sterling could do more damage than good to the economy longer term.
If you’re buying foreign currency in the near future, buying ahead of Theresa May’s speech tomorrow could save you.