GBP Steady as Brexit Talks Begin

U.K. to adopt less confrontational approach

British Brexit Minister David Davies and EU Chief Negotiator Michel Barnier will meet later this morning in Brussels as the United Kingdom begins the process of leaving the European Union.

Britain has always been an uneasy member of the community, joining in 1973, but never really being fully committed. The decision not to become members of the single currency was the major rift which, with hindsight, began the process by which the U.K. would eventually depart.

The whole “raison d’etre” of the EU has changed over the past thirty years or so with the fall of the Berlin wall and the reunification of Germany leading to leading politicians wanting a more “Federal Super-state”.

There is little doubt that as a social experiment, the closer ties of the EU have been a resounding success. However, it is only through the will of successive European Central Bank Presidents that the economic experiment remains viable.

Sterling remains within it recent ranges following the election shock in the U.K. It is trading around 1.2780, whilst the Euro continues to struggle to break the 0.8800 level. The pound is proving resilient against a strong single currency reaching 0.8765.

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May faces difficult week

Under attack from all sides British Prime Minister, Theresa May has to face a vote on the Queen’s Speech later this week which will to all intents and purposes will be a vote of confidence for her minority Government.

The weekend press in the U.K. had stories about senior Conservatives and back benchers planning a coup to remove Mrs May if it looks like the Government will not be able to carry the vote on its planned legislative programme.

Following the very poorly run election campaign and subsequent errors of judgement over the response to the fire in West London that killed at least 58 people, May needs some respite but it is difficult to see where that can come from.

Breaking ranks, Chancellor of the Exchequer, Philip Hammond voiced his concerns on T.V. over Brexit, fatally destroying the “no deal better than a bad deal” mantra, calling no deal a very very bad outcome for the U.K.

A further General Election is not what is needed at such a critical time for the country. The opposition Labour Party could build on the momentum gained over the past few weeks and easily find themselves in power.

Eurozone basks in Stability

There could not be a greater contrast between the U.K. and EU as the Brexit talks begin. In every conceivable way, the U.K. is in turmoil. Politically, being unable to elect a majority Government. Economically, inflation is rising seemingly out of control as growth falters and socially the calls for change grow ever stronger.

The EU however is starting to perform well economically with Greece now the only concern, despite the recently agreed fresh bailout funds. Politically, the Dutch and French have elected pro-EU leaders and now Emmanuel Macron has received further backing from the French people gaining a commanding lead in Parliament.

Economically, ECB President Mario Draghi can begin his summer vacation having presided over a return to growth which has been engineered despite several headwinds.

At the start of the year, the U.K. economy was among the strongest in the G7 whereas the E.U. was still battling diverse performance across a few economies. The U.K., seemingly, had a strong Government with a healthy, potentially increasing majority. The EU was concerned about the rise in nationalism.

Six months later and the picture has been completely turned on its head.

This week’s events of note

The fallout from the U.K. election will continue. An announcement of a formal agreement with the DUP is expected and that should allow the Queen’s Speech to take place and Brexit negotiations to start.