Financial Times

May’s ‘hard Brexit’ denials fail to steady pound as market fears rise

by George Parker, Roger Blitz & Stefan Wagstyl, Financial Times

January 10, 2017 | 12:14 pm
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Premier blames media for sterling’s fall; Investors concerned by lack of clear strategy

The pound dropped to its lowest level since October amid market fears that Theresa May is leading Britain to an uncertain future outside the single market, forcing the prime minister to deny the UK was heading for a “hard Brexit”.

Mrs May instead accused the media of inflaming fears that Britain will crash out of Europe without a deal to stay in the EU’s common market and causing yesterday’s sharp fall in sterling against both the dollar and the euro.

The prime minister insisted she would seek an “ambitious” trade deal with the EU, after markets were unsettled by her comments on Sunday that the UK would not try to keep “bits of membership” of the EU – widely interpreted by investors as a reference to Britain’s inclusion in the single market.

“I’m tempted to say that the people who are getting it wrong are those who print things saying I am talking about a hard Brexit [and that] it’s absolutely inevitable there’s a hard Brexit,” Mrs May said after the pound fell 1.3 per cent against the dollar to $1.2122 in early trading. Her remarks failed to reassure investors and the pound remained at $1.22 at the end of London trading.

The prime minister was not helped by Angela Merkel, Germany’s chancellor, who yesterday reiterated her unwillingness to allow Britain favourable access to the single market if Mrs May insisted on ending the free movement of EU ­citizens into the UK.

Ms Merkel said Britain would not be allowed any “cherry-picking” in its access to the single market.

Mrs May’s Sunday comments were not the first time her hardline Brexit stance has spooked currency traders. Her October party conference speech, where she laid out her determination to take control of Britain’s borders and laws, was viewed as a signal that Britain would leave the single market. It sparked the biggest sterling drop since the June referendum.

But analysts said markets were now becoming more concerned by Mrs May’s lack of a clear plan. “Until the government finally presents a concrete and convincing strategy, market participants will increasingly fear a disaster,” said Esther Reichelt at Commerzbank.

Andrew Tyrie, Tory chairman of the Commons Treasury committee, called for clarity last night, urging Mrs May to say whether she wanted to stay in the single market and seek a transition deal to ease Britain’s exit out of the bloc.

Ministers are seeking to minimise economic disruption by keeping Britain partially inside the EU’s customs union, removing tariffs on trade and reducing the need for border controls.

Ms Merkel made clear her priority was holding together the remaining 27 EU states. She added that maintaining good relations with London – an approach she supports – did not mean giving ground when Brexit talks began.

 

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by George Parker, Roger Blitz & Stefan Wagstyl, Financial Times

January 10, 2017 | 12:14 pm
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