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World

British Pound Sags Ahead of Prime Minister's Brexit Speech

The currency hit a three-month low Monday, a day before her address, over worries that May will signal an economy-roiling clean break, known as "hard Brexit"

A pedestrian with an umbrella passes a board showing the exchange rates at a money exchange bureau in London, Monday, Jan. 16, 2017, photo: AP/Kirsty Wigglesworth
8 months ago

LONDON — After months of repeating the mantra that “Brexit means Brexit,” Prime Minister Theresa May is set to reveal details of Britain’s closely guarded plans for leaving the European Union, in a speech that has already increased pressure on the beleaguered pound.

The currency hit a three-month low Monday, a day before her address, over worries that May will signal an economy-roiling clean break, known as “hard Brexit.” But May rejects that label and its opposite, a compromise “soft Brexit.”

On Tuesday, she’ll aim to outline what could be called a Goldilocks Brexit — one that’s just right.

“It is in the U.K. and EU’s best interests to do the right deal, a deal that makes sense for us all,” May spokeswoman Helen Bower said Monday.

Few advance details have been revealed about May’s speech to an audience of British civil servants and international diplomats at London’s Lancaster House, a Georgian mansion that has hosted international summits over the decades.

The prime minister’s 10 Downing St. office says May will call for a “global Britain” that’s open to the world “while also building a new and positive relationship with its European friends and neighbors.”

That summary did little to reassure the pound, which plunged below $1.20 in early trading Monday after newspapers suggested May would signal plans to take Britain out of the EU’s single market and customs union.

Sterling has lost about a fifth of its value since Britain voted in June to leave the EU.

Some British media say May will advocate leaving the EU’s single market in goods and services in order to gain control over immigration — a key issue for many voters who backed Brexit. EU leaders say Britain can’t stay in the single market without allowing free movement of people from the bloc.

The prospect of losing single-market access alarms many in Britain’s huge financial services sector, which relies on an ability to do business seamlessly across the 28-nation bloc.

It also worries the many foreign firms who use London not only as a financial hub but as an entry point into the EU.

“We now have to assume May will prioritize immigration controls and the price to pay will be to exit the single market,” said Neil Wilson, senior market analyst at ETX Capital. “That could send the pound a lot lower still, perhaps towards $1.10 in the coming weeks.”

May’s office declined to comment on currency fluctuations.

The pound recovered to above $1.20 Monday after President-elect Donald Trump’s comment in an interview with The Times of London that a U.S.-U.K.-trade deal could be done “very quickly” once he takes office this week.

Under EU rules, Britain is barred from striking bilateral trade deals while it remains a member of the bloc, though it can hold preliminary talks.

May has said for months that she will invoke Article 50 of the EU’s key treaty, formally beginning a two-year process of negotiating Britain’s departure, by March 31.

But she has refused to reveal details about the government’s goals or negotiating strategy, arguing that to do so would weaken Britain’s hand.

That lack of clarity has fueled allegations that her Conservative government’s plans are in disarray — and has led media and markets to seize hungrily on every hint and nuance.

British Treasury chief Philip Hammond also fueled speculation that Britain will play hardball in Brexit negotiations. He told Germany’s Welt am Sonntag newspaper that Britain hoped to retain single-market access, but would be willing to “change our economic model to regain competitiveness” if that was cut off.

Opposition Labour Party leader Jeremy Corbyn accused Hammond of threatening a “trade war with Europe” and seeking to turn Britain into a tax haven.

Bower said May and Hammond both wanted Britain “to remain in the mainstream of a recognizable European-style taxation system.”

“But if we are forced to do something different because we can’t get the right deal, then we stand ready to do so,” she said.

Tim Bale, professor of politics at Queen Mary, University of London, said that May would be well advised to use her speech to bring clarity about Britain’s intentions — even if many people won’t like the message.

 

JILL LAWLESS

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