May to Seek Hard Brexit by Leaving EU Market, Times Reports
May to Seek Hard Brexit by Leaving EU Market, Sunday Times Says
(Bloomberg) -- U.K. Prime Minister Theresa May will this week signal plans for a “hard Brexit’’ by saying she’s willing to quit the European Union’s single market for goods and services to regain control of Britain’s borders and laws, the Sunday Times reported.
In a speech scheduled for Tuesday in London, May will prepare to withdraw from tariff-free trade with the region in return for the ability to curb immigration, strike commercial deals with other countries, and escape the jurisdiction of the European Court of Justice, the Sunday Times said without saying how it obtained the information.
Her finance chief, Philip Hammond, in a separate interview said Britain would be willing to abandon “mainstream economic and social thinking” if it is unable to craft a favorable post-Brexit EU deal, according to the German newspaper Welt am Sonntag.
May’s blueprint for Brexit risks alarming investors, bankers and company executives who will fret that May is prioritizing social issues over economic growth. Government officials told the Sunday Times they expect her speech to cause a “market correction.” The pound fell last week to its lowest level against the dollar since October on concern about her intentions.
The prime minister’s office declined to comment on the report when contacted by Bloomberg News. It said in a separate statement that May will declare in her speech that having divided over Brexit, voters are now uniting behind making it a success.
“The overwhelming majority of people -- however they voted -- say we need to get on and make Brexit happen,” May will say. “So the country is coming together.”
May will seek a transitional phase between splitting from the EU and the beginning of a new trading relationship, the Sunday Times said, citing Brexit Secretary David Davis. That’s to avoid sweeping tariffs being imposed after the breakup and to grant businesses time to adjust.
“We don’t want the EU to fail, we want it to prosper politically and economically, and we need to persuade our allies that a strong new partnership with the U.K. will help the EU to do that,’’ Davis wrote in the newspaper. “If it proves necessary, we have said we will consider time for implementation of new arrangements.’’
Parliamentary Report
Seven months after 52 percent of voters chose to quit the EU against 48 percent who wanted to remain, and less than three months before her own deadline to open two years of divorce talks, May is under mounting pressure at home and abroad to detail her strategy. In a report released on Saturday, the panel of British lawmakers charged with scrutinizing Brexit said her government must deliver its road map by the middle of February.
The speech isn’t the only upcoming Brexit milepost. The Supreme Court is set to rule this month whether May or Parliament carries the power to invoke the exit, although few see it being derailed either way.
Carney Speech
Bank of England Governor Mark Carney -- who has come under fire in recent months for being too involved in the Brexit debate -- is also due to deliver a speech on Monday evening in London. The BOE declined to comment on what he will discuss.
Speaking on the BBC’s “Andrew Marr Show” on Sunday, U.K. opposition Labour Party leader Jeremy Corbyn said May “appears to be heading us in the direction of a sort of bargain-basement economy on the shores of Europe.”
“We will lose access to half of our export markets -- it seems to me an extremely risk strategy,” he said.
The Sunday Telegraph reported that the opposition Labour Party will introduce an amendment in the House of Commons demanding that members get to vote on a final Brexit deal, and if defeated they will speak out in the House of Lords to urge the government to make the guarantee of a vote.
Hammond, in the German newspaper interview, said he hoped the U.K. could remain in the mainstream, but was prepared for the consequences for a hard Brexit.
‘Economic Damage’
“If we have no access to the European market, if we are closed off, if Britain were to leave the European Union without an agreement on market access, then we could suffer from economic damage at least in the short-term,” he said. “In this case, we could be forced to change our economic model and we will have to change our model to regain competitiveness. And you can be sure we will do whatever we have to do.”
May will hope to eventually line up a new free-trade partnership with the bloc, yet in the meantime leaving the EU’s single market and customs union risks making it costlier and more complicated for British exporters to trade with their biggest market. It may also force banks to carry out their threats to move jobs from London to the continent to ensure they maintain access to it.
Still, staying in the customs union would prevent the U.K. from lining up free-trade pacts with non-EU countries such as the U.S. and China. Foreign Secretary Boris Johnson returned from a trip to the U.S. last week saying he’d been told President-elect Donald Trump’s administration will want a fast trade pact with Britain.
Merkel’s Line
Leaders from the EU’s 27 other states including German Chancellor Angela Merkel have held steadfast to the line that they won’t allow May to “cherry pick’’ the best parts of membership without accepting the responsibilities, including allowing free movement of labor.
That requirement has become a pressure point in the U.K. with net migration to the U.K. from the EU reaching 189,000 in the year ended June. May has repeatedly indicated she views June’s referendum as a call from voters to slash that number.
Tuesday’s speech is likely to be closely watched by the financial markets, with currency traders increasingly seeing May’s pronouncements on Brexit as a trigger to sell the pound. Sterling fell following her speech at the Conservative Party conference in October, which fanned speculation she was eyeing a clean break with the EU, and dropped again following her first television interview of 2017.
A survey by Opinium conducted Jan. 10-12 and published in Sunday’s Observer newspaper found 30 percent of respondents viewed May’s Conservatives as most likely to deliver the best Brexit outcome, compared with 13 percent who said the same of the opposition Labour Party.
--With assistance from Jill Ward To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net, Tim Ross in London at tross54@bloomberg.net. To contact the editors responsible for this story: Alan Crawford at acrawford6@bloomberg.net, Steve Geimann, Keith Campbell