Theresa May’s much heralded speech on Britain’s negotiation to leave the EU produced little we didn’t already know but did provide a 12 point framework outlining, perhaps in idealised form, the major aims and objectives. The speech would have pleased those looking for a full exit from the trading block but was short on the detail that will slowly emerge after article 50 is triggered by the end of March and the 2-year negotiating period commences. The Prime Minister was also conciliatory regarding Britain’s future relationship with the EU and promised a harmonious approach to the upcoming negotiation.

As had been widely expected the Prime Minister told the assembled audience that Britain would not opt for a half-Brexit and would instead leave the single market, ending free movement of goods, services and capital, regaining control of immigration and the UK’s borders. In its place a new agreement would be sought based on the principle of free trade and the best possible access to the single market, without membership.

Regarding the Customs Union, Theresa May was less definitive, suggesting Britain wanted a bespoke relationship with the EU, thereby discarding the application of the commercial policy or the common external tariff. This, she said, would allow the Britain to make its own trade deals with the EU and the wider world without reference to the collective bargaining of the EU trading bloc.

The Prime Minister also made clear that Britain must take back full control of its own laws and not be subject to the jurisdiction of the European Court of Justice in Luxembourg. On exit EU laws would be become British laws to be adjusted or discarded by British lawmakers alone. The Prime Minister also made welcome reference to the protection of rights for workers already enshrined in European law.

The speech pledged co-operation with Europe on issues relating to intelligence, terrorism and foreign affairs and the Prime Minister also provided soothing words for the status of EU citizens currently in residence in the U.K and hoped EU countries would offer the same protection to UK citizens currently residing in Europe.

In order to avoid the “cliff-edge’ effect should no final deal be agreed at the end of the 2-year negotiating period, the Prime Minister expressed a wish for a phased implementation of the exit process for a variety of sectors and industries. Many have already suggested that UK businesses, financial services for example, would require a longer period of transition to fully adjust to life outside the EU.

The Prime Minister also promised a parliamentary vote at the end of the negotiating period to approve or not the final deal for the UK’s exit from the EU, ensuring that MP’s from both houses will have the final say on the proposed programme.

Market reaction to the speech was largely positive with the Pound enjoying a significant rally of more than 300 points. Much of this can be attributed to the early signposting of today’s speech and the short positions built up in the last few days. Stock markets were weaker generally but have begun the year in positive mood and the FTSE remains in excess of the 7000 mark.

European politicians reactions were slow to emerge but when they arrived we’re, as expected, somewhat less than encouraging. Many expressed incredulity that Britain would wish to leave the single market and reiterated that the UK could not ‘cherry-pick’ the favourable parts of a relationship with the EU, whilst jettisoning those which do not suit British interests.

In the end Theresa May made it clear that a bad deal for Britain would be worse than no deal at all, firmly placing the ball back in the EU camp to ensure a smooth negotiation and outcome.

For the UK property markets today’s speech will have changed little with most of the significant sector specific news having emerged in the Autumn Statement in November. If anything the continued weakness of the currency will encourage further foreign interest in UK property markets whilst government policy supporting infrastructure projects remains encouraging.

 

Mike Harris

Non-Executive Director – Investment