Evdokia Pitsillidou, Head of Risk Management at easyMarkets. She specialises in commodities, options and currencies and loves to solve analytical problems and overcome challenges.

Brexit Talks Begin and Market Braces for Uncertainty

Official talks between the United Kingdom and Europe over Brexit plans have begun. But instead of negotiating from a position of strength, Theresa May’s Conservatives found themselves on the backfoot after a disastrous el

Several reports have indicated that Prime Minister May is being pressured to ditch her “h

ection just a few weeks earlier.

Is it time to ditch hard Brexit plans?

ard Brexit” plans. One senior Conservative Member of Parliament told The Independent: “She needs to go on in a far more consensual manner if she is going to get anything through.”

“The DUP are not even locked in yet. No one knows if she has the numbers to win all the votes that will be needed. Some people have realised that, others haven’t. Soon everyone will,” the MP added.[1]

The Conservative party failed to lock down a majority at the 8 June election – a disastrous outcome for the prime minister, who called an early vote to shore up her legitimacy and build a bigger consensus in parliament. Instead of a Conservative majority, the prime minister is forming a coalition with Northern Ireland’s Democratic Unionist Party (DUP).

Tusk would like to avoid Brexit altogether

European Council President Donald Tusk recently said he still holds out hope that the U.K. would avoid Brexit and return to the single market.

“I told them that in fact the EU was built on dreams that seemed impossible to achieve. So who knows? You may say I am a dreamer but I’m not the only one,” Tusk said hours before EU policymakers coalesced in Brussels to discuss security concerns.

May was also present at the two-day summit in what was her first outing with EU officials since the election.[2]

How could Brexit talks go?

Brexit talks are expected to get messy in the months ahead. A weakened Theresa May could compel the EU to take a more hardened approach on exit talks. Although the UK has expressed a desire to maintain free-trade relations, that could prove to be a hard sell without offering major concessions. Chief among those concessions would likely be maintaining mobility rights for EU citizens, which would run contrary to the Conservatives’ platform.

Brexit talks are expected to last for at least two years. A failure to reach an agreement in that time period could result in an extension. In response, the Bank of England (BOE) is maintaining a highly accommodative approach to monetary policy. This has placed significant pressure on the British pound, which plunged to 30-year lows following last year’s referendum.

[1] Joe Watts (22 June 2017). “Brexit: Theresa May urged to ditch hard exit or face failure.” The Independent.

[2] Tom Batchelor (22 June 2017). “Brexit: Donald Tusk ‘keeping door open’ for Britain to stay in EU despite talks.” The Independent.

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