EU-UK Trade Talks Postponed to March

Yesterday, the market was looking for the EU leaders to give the go-ahead for talks on the UK’s future relationship with the former. While the statement made at the end of the Brussels summit acknowledged that sufficient progress was made in the talks between the EU and UK negotiators, the EU leaders postponed the crucial trade related talks to March. Financial markets do not like uncertainty and the unexpected delay, which may even result in a disorderly exit in 2019, has certainly weakened the Pound.

The European Council President Donald Tusk said Thursday that an acknowledgement of “sufficient progress” would be made at the end of the EU meeting. So, the financial markets were not excited about the declaration. Instead, the market was looking for an update on trade related talks, which never came in. Instead, the EU set a March deadline for Britain to decide the nature of trade deal it requires after Brexit. A more worrisome fact to investors was the EU’s saying that the UK has no idea of the kind of deal it requires on departure.

However, the UK’s Prime Minister Theresa May said Friday that her government is working to secure the best trade deal with the EU, while retaining complete control over immigration and other important issues.

On Twitter, May said

“We will deliver on the will of the British people and get the best Brexit deal for our country – securing the greatest possible access to European markets, boosting free trade with countries across the world, and delivering control over our borders, laws and money”.

However, the Forex and equity markets were not impressed as strategists believe that a delay in beginning trade talks could result in a disorderly Brexit. In order for a deal to be in place before March29, 2019 (exit date), a deal should be put to the European Council before the beginning of October 2018 summit.

After the European Council approves the agreement, it must get ratified in the Parliaments of all member states. Further, European Council guidelines explicitly dictate that a deal can be entered only after the UK becomes a “third country”. Thus, only a broad outline of a trade agreement can be prepared before the exit of the UK in March 2019.

Bloomberg TV Markets and Finance

Notably, on Wednesday, the UK House of Commons passed an amendment to the European Union Withdrawal Bill. That is considered as a blow to Theresa May as the amendment could enable the opposition to force the Prime Minister to renegotiate a different deal with Brussels.

The above developments have undoubtedly turned the sentiment bearish towards the Pound. However, Theresa May got an unexpected support from her Italian counterpart Paolo Gentiloni who called for a “tailor made” Brexit trade deal for the UK. The statement totally contradicted that of Michel Barnier, the chief EU negotiator. Until trade related talks begin and move forward, the Pound would remain weak.

---