Buying time?

ashley
Managing Director
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Posted on September 26, 2017

Theresa May has had a busy week. Beginning with her first ever visit to Canada to meet Canadian Prime Minister Justin Trudeau, she traveled through New York for the United Nations General Assembly and on to Florence, to ostensibly address her own Cabinet about her vision for Brexit.

Her intention was to find the language to unblock the Brexit negotiations, give them a kick start and get them going again. May delivered a mostly positive speech which was crafted to build more trust with the EU and set out her vision for a 2 year transition period, during which the UK would remain within the Single Market and allowing more time for business to prepare for what comes next. During this time the UK would remain with the current arrangement except for no longer having a seat at the EU table. In essence, Mrs. May has proposed to pay the EU billions to buy time for the UK to adapt. There has been mounting pressure from UK business, from within her own Cabinet and from the weakened position she found herself in after the June election, for a ‘softer’ exit from the EU. The tone of her speech was considered and welcomed as ’constructive’ by Michel Barnier who leads the EU negotiations.

Whilst the tone of what she said was seen as positive, the EU are clear that the three main issues, still hanging without agreement, need to be nailed down before discussing any future arrangements, including the transition and any trading relationship. The three issues remain, the rights of EU nationals in the UK/UK Nationals in the EU, border arrangements with Northern Ireland and probably the most contentious issue, the divorce bill the UK is expected to pay. May has been clear that the UK will fullfill its legal obligations, but the amount to be paid is still up for negotiation. This particular point is politically sensitive, with some Brexiteers stressing that the UK should simply leave and the EU ‘can go whistle”.

Behind all this, May’s Cabinet remain in chaos. Sniping within the Cabinet, stoked by both Chancellor Philip Hammond and Foreign Secretary Boris Johnson, continues to make life difficult for the PM. Having come through the early wounding of the June General Election, she is now determined to remain at the helm as long as she can. Johnson remains a thorn in her side and should he continue to assert what can only be described as his own strategy to replace her, she may well be inclided to sack him but she also knows he would be more problematic outside the tent. Similarly, Hammond, a remainer with more than an eye and indeed responsibility for the economy, understands the economic hit the UK would take if the UK simply leaves both the customs union and single market. He had reportedly been backing a longer 5 year transition period.

What has changed over the last few months is how interest in Brexit in Europe has fallen. For the UK, Brexit dominates the political landscape, squeezing out domestic issues. But in Europe, there is less engagement on Brexit, less interest.

Theresa May will be heading to Manchester this weekend for the Conservative Party Conference. She will likely find it the toughest she will ever have attended, for despite the Florence speech, there remains little clarity on what the UK’s strategy is and what kind of relationship the UK will pursue with the EU. This uncertainty directly impacts the UK economy. Even with an effective devaluation of Sterling, exports haven’t filled the gap. The economy remains sluggish and interest rates are almost certain to rise as inflation heads to near 3%.

Navigator's Brexit Response Team

If you have any questions on the implications of Brexit and its implications for your organization, please reach out to Navigator's Brexit Response Team.

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