Strategy & economics

Today's Brexit speech at a glance

17/01/2017

Caspar Rock

Caspar Rock

Chief Investment Officer

Today Prime Minister Theresa May gave her much-anticipated speech outlining her key priorities for the Brexit trade negotiations:

Her own concluding comments

  • We will provide certainty wherever we can.
  • Leaving the European Union will mean that our laws will be made in Westminster, Edinburgh, Cardiff and Belfast.
  • A stronger Britain demands that we strengthen the precious union between the four nations of the United Kingdom.
  • We will deliver a practical solution that allows the maintenance of the common travel area with the Republic of Ireland.
  • Brexit must mean control of the number of people who come to Britain from Europe.
  • We want to guarantee rights of EU citizens living in Britain and rights of British nationals in other member states, as early as we can.
  • Not only will the Government protect the rights of workers set out in European legislation, we will build on them.
  • We will pursue a bold and ambitious free trade agreement with the European Union.
  • It is time for Britain to get out into the world and rediscover its role as a great, global, trading nation.
  • We will welcome agreement to continue to collaborate with our European partners on major science, research and technology initiatives.
  • We will continue to work closely with our European allies in foreign and defence policy even as we leave the EU itself.
  • We believe a phased process of implementation will be in the interests of Britain, the EU institutions and member states.

What does this mean?

Key messages that will impact markets

  • The intention to leave the single market – there was no real alternative given the desire to have control of immigration and the ability to make our own laws.
  • The desire to negotiate partial access to the customs union, (less ‘hard’ Brexit than sterling was discounting before the speech).
  • The desire to negotiate a free trade agreement with the EU.
  • The recognition that although the government wants to have concluded negotiations within the two years of triggering Article 50, there will be the need for ‘phased implementation’ (transitional agreements) in certain areas to avoid a ‘cliff edge’ change that affects both the EU and UK.
  • That the final deal will be voted on by both the House of Commons and House of Lords – an important check in the process

Key messages that gave clues about her negotiating strategy

  • That free trade is not a zero sum game – it benefits both sides and would be negative for both the EU and the UK if we don’t have it.
  • That no deal is better than a bad deal – the government is prepared to walk away.
  • That the UK could implement a new economic model – very low corporation tax rates.

Market reaction

  • In the immediate aftermath of the Prime Minister’s comments, sterling/dollar rose from 1.21 to 1.23, the FTSE 100 fell, and gilt yields rose.

Author

Caspar Rock

Caspar Rock

Chief Investment Officer

Caspar Rock joined Cazenove Capital in September 2016 and is Chief Investment Officer. He joined from Architas Multi-Manager Ltd, a part of the AXA group, where he was Chief Investment Officer and responsible for all aspects of the investment activities, including investment philosophy, process and team. He also oversaw portfolio management at two of AXA group’s private banks. He previously headed up the multi-manager business at AXA Framlington from 2006 to 2008. Prior to that, he managed a range of directly invested equity and bond portfolios, and was Head of European Equities at Framlington as well as a member of the Healthcare team. He has 29 years’ investment experience. 

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