Prime Minister Theresa May is due to give a speech on Brexit, but what does this mean for the Pound?

Prime Minister Theresa May is due to give a speech on her chosen Brexit strategy this week, which is causing havoc in the UK energy markets, and more notably is causing much fluctuation in the value of the Pound. Last week May’s speech had outlined the elements of a so-called ‘Hard-Brexit’, despite trying to discourage the label as ‘hard’. Newspapers and articles making statements about harsh-Brexit policies are causing the Pound to drop in value, however many have argued that a clearer picture on Brexit would have prevented any dramatic speculation earlier on. So far, very little about the UK’s exit from the European Union has been announced to the very nation that made the decision.

Reports suggest that May’s initial moves will consist of tackling immigration into the UK, and then to leave the Single Market in order to create a bespoke and individual agreement that relates to the UK and its ability to trade with existing members of the EU. These two policies do not exactly go hand in hand, as one of the four elements of access to the Single Market is the free movement of people. However, MP’s have argued that in the past the UK has made arrangements that limit the amount of people from different countries to enter into the UK – so why should this be a problem now? Hopefully more information will be given during May’s speech scheduled tomorrow.

Priority will be given to immigration control and the UK will therefore lose its privileged access to the single market. The UK Chancellor, who is rather seen as favouring a soft Brexit, warned that the UK government would be ready to cut taxes sharply in order to boost its country’s competitiveness and attract investments to the detriment of the EU.

 

For now, the Pound has lost value this week and last, and is continuing on a trend back towards Octobers’ levels, which showed the GBP at its lowest point post-Brexit. A weaker Pound means higher gas and power prices, but this is not only affecting front month prices, but is showing an increase into 2018 and 2019 months too. This is something that will remain to be an influence in the market until the UK has fully left the EU. Traders have been – and will continue to – build in a premium on gas and power prices until a strategy is clear in an attempt to minimise risk.

The GBP is trading at a three month low of around $1.21 and around €1.14. The price of oil will continue to fluctuate as the GBP and USD pair continue to move. Furthermore, reports suggest that as President Elect Donald Trump has been a supporter of Brexit for Britain, and is willing to strike a trading deal with Theresa May. This too could cause a stir in the value of the Pound.

Theresa May’s speech tomorrow should provide some indication into what sort of policies and strategies the Government may be aiming for. However, market analysts expect the Pound to falter yet again should she opt for a harsh approach to implementing Brexit.

 

 

 

 

 

Sources: BBC News, the Guardian, the Independent, the Financial Times, the Telegraph, Npower (RWE), Scottish and Southern, Engie, Gazprom Energy, EDF Energy.