How Low can it Go? (Still somewhat Old News)
Pound falls ahead of Theresa May Brexit speech.
The pound has fallen against the dollar to below $1.20 ahead of a key speech from Theresa May on Brexit this week. Sterling fell 1.5% against the US currency on Sunday to its lowest level since the flash crash in October. Analysts said traders were reacting negatively to reports that the prime minister would signal plans on Tuesday to quit the EU single market. The pound has now dropped about 20% against the dollar since the referendum when it fell to 31-year lows. The pound also dropped to a two-month low against the euro on Sunday, falling to about €1.13. Several of Sunday's newspapers claimed Mrs May would outline a "hard Brexit" approach, a term used to imply prioritising migration controls over single market access. Downing Street has described this as "speculation". However, reports of the UK leaving the single market are "like kryptonite" to traders who back the pound, said Kathleen Brooks, an analyst at City Index. "The FX market has spoken, and, as of Sunday night, it is not confident that Theresa May can deliver the necessary clarity and confidence when she lays out her Brexit plans in a speech on Tuesday," Ms Brooks said. The "Brexit theme as bad news for the pound is such an ingrained trend" now that every headline can "generate another wave of selling", she added. The pound has been volatile since the Brexit vote, partly due to uncertainty about the economic impact if the UK gives up its tariff-free access to the EU. It reached its lowest level in the early hours of 7 October when a flash crash during Asian trading saw it drop below $1.18. A report on Friday said the abnormally large swing was due to a range of factors, including the time of day. Trading in the pound can be more volatile in Asian markets, when key sterling counter traders in London and other important Western markets are not operating.
Europe sees UK set for 'hard' Brexit after May speech.
Prime Minister Theresa May's Brexit speech is being seen in Europe as the "hard" option of full UK withdrawal - and there is some relief that the British position is clearer now. "Finally we have a little more clarity re the British plans," German Foreign Minister Frank-Walter Steinmeier said. Germany also wanted a "close and trusting relationship", he said. The Czech Europe Minister, Tomas Prouza, tweeted: "UK's plan seems a bit ambitious. Trade as free as possible, full control on immigration... where is the give for all the take?" he asked. The Italian daily La Repubblica commented: "Out of the EU, out of common market, out of everything. It appears that Theresa May's intention through negotiations with the EU at the end of March is 'a hard Brexit' - a very hard Brexit indeed." One of the top EU officials, European Council president Donald Tusk, voiced regret but some relief too in a tweet: "Sad process, surrealistic times but at least more realistic announcement on #Brexit." Belgian liberal Guy Verhofstadt, named as the European Parliament's lead negotiator on Brexit, warned that any deal for the UK would be worse than EU membership. He said it was an "illusion" for Mrs May to suggest "that you can go out of the single market, that you can go out of the customs union and that you can cherry-pick, that you can have still a number of advantages - I think that will not happen". Mrs May's mention of a possible alternative economic model for the UK was a "threat", he said, that could obstruct the negotiations.
UK inflation rate jumps to 1.6%.
Rising air fares and food prices helped to push up UK inflation to its highest rate since July 2014 in December. The annual rate of Consumer Prices Index (CPI) inflation rose to 1.6% last month, up from 1.2% in November, the Office for National Statistics said. And higher costs for imported materials and fuels pushed up producer prices. The fall in the pound since the Brexit vote was starting to feed into the economy, said the BBC's economics editor, Kamal Ahmed. ONS head of inflation Mike Prestwood said: "This is the highest CPI has been for over two years, though the annual rate remains below the Bank of England's target and low by historical standards. "Rising air fares and food prices, along with petrol prices falling less than last December, all helped to push up the rate of inflation. "Rising raw material costs also continued to push up the prices of goods leaving factories." Separate producer price inflation figures showed that the price of goods bought from factories rose 2.7% in December compared with a year ago, as manufacturers started to pass on the higher input costs they are facing following the fall in the pound. The prices paid by factories for raw materials and energy jumped by 15.8% over the year, the largest increase since September 2011. Consumer inflation as measured by the Retail Prices Index (RPI), which includes housing costs, rose to 2.5% in December from 2.2% the previous month.
City banks warn of Brexit job moves.
Two of the largest investment banks in the City of London have confirmed that some staff will definitely have to move abroad when the UK leaves the EU. HSBC's chief executive, Stuart Gulliver, told Bloomberg he was preparing to move 1,000 staff from London to Paris. And Axel Weber, boss of Swiss bank UBS, told the BBC "about 1,000" of its 5,000 London jobs could be hit by Brexit. The comments underline that many thousands of banking jobs may move. The statements from the two banks come just a day after UK Prime Minister Theresa May outlined the UK government's Brexit negotiating strategy which would, she said, involve leaving both the European single market and the EU's customs union. UBS chief executive Sergio Ermotti told Bloomberg he would have a better idea towards the end of 2017 about how many jobs at his bank will need to move out of London. But one of his senior executives, Andrea Orcel, also speaking at Davos, said: "With Brexit we will have to [move] and the question is how many. That will very much depend on the agreement that the UK will reach with the EU - but we will definitely have to go." Mr Orcel added that his bank was "anticipating the worst". He explained that if the UK and the EU did not reach any sort of transition deal about Brexit, then some of his staff in London would have to be moved as soon as the UK government invoked Article 50, the legal procedure to leave the EU.
All details above from BBC News website.
[So the Brexit negotiations have finally started. I wonder how Day One went? Not great, I’m thinking. Teresa May is now in a much weaker position than she was 6 weeks ago so her negotiating position must be correspondingly weaker too. This means, I believe, that she can’t pull the ‘no deal is better than a bad deal’ nonsense and will actually have to, you know, negotiate rather than vainly attempting to throw her weight around.]