In a highly anticipated speech, Theresa May told a gathering in Florence, Italy on Friday that the United Kingdom needs a two-year transition period before finalising Brexit. Under the new timetable, Brexit would not come into fruition until 2021. The comments contrasted sharply with May’s previous pledge to wrap up talks for a hard Brexit in time for March 2019.
The prime minister also said her country would be willing to offer significantly more than the €20 billion bill to cover annual contributions over two years, with some estimates suggesting that the final bill could be double that or more.
“I do not want our partners to fear that they will need to pay more or receive less over the remainder of the current budget plan as a result of our decision to leave. The UK will honour commitments we have made during the period of our membership,” May said in the 45-minute speech.
She also indicated that the UK was “unconditionally committed to maintaining Europe’s security.”
May’s negotiating hand was dealt a major blow this past June when her party failed to secure a majority in a snap election that many believed was unnecessary. On the home front, the prime minister faces a deeply divided parliament, with the Tories and opposition Labour party at odds over how to proceed. News sources suggest that May was mulling an even longer transitional period until Foreign Secretary Boris Johnson threatened to resign.
On the economic front, Britain appears to have withstood the immediate shock of the Brexit referendum, so much so that policymakers are expected to raise interest rates before the end of the year. In perhaps its clearest signal yet, the Bank of England (BOE) said earlier this month it will likley raise interest rates “over coming months” to curb inflation.
The Office for National Statistics reported earlier this month that annual inflation reached 2.9% in August, well above the central bank’s 2% target and already higher than the peak officials had projected in their latest Inflation Report.
The BOE rushed to cut interest rates in August 2016 following the Brexit vote. At the time, policymakers said overshooting their inflation target was acceptable to ensure broader shocks to the financial system were kept at bay following the landmark vote.
Anushka Asthana and Rowena Mason (22 September 2017). “Theresa May asks EU for two-year Brexit transition periods.” The Guardian.
Ben Chu (14 September 2017). “Bank of England set to raise interest rates ‘over coming months’ to curb inflation.” The Independent.