Markets shrug at May's Florence speech
Theresa May’s speech confirmed that the UK is seeking a transition period but gave few further details on the final shape of Brexit.
22 September 2017
Investors had hoped that Prime Minister Theresa May’s Florence speech would be the factor that pushed Brexit negotiations forward.
However, the speech was a slightly softer version of her Lancaster House speech from January, and lacked many of the concrete details that the European Commission is desperate for.
Negotiating an implementation period
Indeed, the only new information from the speech is that the government is now negotiating for an implementation period, during which the UK - in all but name and voting rights - continues to be a member of the EU.
The implementation period would last for a limited period depending on the length of time required to implement the changes in systems needed to make such a transition.
In addition, if negotiations move forward, May also floated the idea that Brexit could be brought forward.
UK to pay into budget during transition
On the crucial issue of future contributions to the EU budget, there were no new details other than that the UK would pay its obligations through the transition period, and a fair share for future cooperation on certain projects.
This continues to be the sticking point in negotiations, and the lack of a figure being offered at this stage could delay the next stage in negotiations which include trade talks.
Speech greeted by sterling sell-off
Overall, not the speech markets were hoping for, which was reflected by the slight sell-off in sterling versus the US dollar.
From an economic perspective, the hope of a transitional period is useful, but only buys time for firms to adjust to a new relationship with the EU, which is still uncertain.
Until more progress is made on these initial issues, and then on the future trade relationship, the outlook for the UK economy will remain clouded.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.