Britain’s pound fell on Monday as concern rose that the country is 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 a shift away from preferential EU single market access – in order to win restrictions on immigration – and a toughening of the UK’s stance towards an economic bloc that accounts for roughly half its exports and imports.
A spokeswoman for May, who will also attend a gathering of the world’s economic elite in Davos, Switzerland, this week, called the reports about the tone of her upcoming speech “speculation”.
That remark helped steady sterling in London trading but could not repair all the damage. The pound at one point had dropped below $1.20 to a three-decade low, barring its “flash crash” in October, and as much as 2.5 percent against the Japanese yen. GBPJPY= [/FRX]
“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 by the end of March, which will start formal EU separation proceedings, the battle lines are already being drawn.
British finance minister Phillip Hammond also gave a thinly veiled warning in a German newspaper interview at the weekend that the UK 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.”