Popular resentment of immigration is driving Britain to a disruptive departure from the EU.
Photograph by Oli Scarff—AFP/ Getty Images
By Reuters
January 16, 2017

Britain’s pound fell sharply on Monday as concern mounted that the country was heading for a “hard” Brexit from the European Union and its single market, a day before a speech by Prime Minister Theresa May on the government’s plans.

Some British newspapers have billed May’s speech on Tuesday as laying out potential major changes to its preferential single market access and hardening its stance towards an economic bloc that accounts for roughly half its exports and imports.

A spokeswomen for May, who will also attend a gathering of the world’s economic elite in Davos, Switzerland, this week, called the reports about the planned tone of her upcoming speech “speculation”.

That helped steady sterling in London trading but couldn’t repair all the damage. The pound at one point dropped to a three-decade low against the dollar, barring its ‘flash crash’ in October. It also fell by as much as 2.5 percent against the Japanese yen.

“It’s clear that sterling is still very vulnerable to ‘hard’ Brexit fears,” said Rabobank currency strategist Jane Foley. “The uncertainty is itself also a negative factor, and I think perhaps that’s one of the reasons for Theresa May’s speech on Tuesday, to provide a little bit of clarification.”

With May expected to trigger Article 50 in March, which will start formal EU separation proceedings, the stakes are already rising.

British finance minister Philip Hammond also gave a thinly veiled warning in a German newspaper interview at the weekend that Britain could use corporate tax as a form of leverage in Brexit negotiations.

“If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short term,” he said. “In this case, we could be forced to change our economic model.”

However, he added that Britain did not want to close its doors completely to EU citizens who wanted to work in the UK.

 

The pound has fallen almost 20 percent against the dollar and nearly 14 percent against the euro since Britain voted to leave the EU. London’s stock market continued to benefit, however: the FTSE was the only major European index not in negative territory. It has surged 25 percent since Brexit, partly because the slump in the pound helps internationally-spread companies that earn in dollars and euros.

May has so far given very little away about what deal she will be seeking, frustrating some investors, businesses and lawmakers.

Tuesday’s speech will stress the need for Britons, who voted for Brexit by 52 percent to 48 in last June’s referendum, to unite around common goals such as protecting and enhancing workers’ rights, her Downing Street office said in a statement.

“Now we need to put an end to the division and the language associated with it – ‘Leaver’ and ‘Remainer’ and all the accompanying insults – and unite to make a success of Brexit and build a truly global Britain,” May is expected to say.

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