UK: Article 50 to departure - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the key to ending the initial phase of pronounced uncertainty is the replacement of PM Cameron.

Key Quotes

“Boris Johnson has announced his surprise decision not to run for the leadership, which leaves Michael Gove and Theresa May as the two leading candidates for PM. Theresa May stated the probable earliest timing for invoking Article 50 would be around year-end.

Of course the two-year period that follows will not be enough for an all-encompassing trade deal to be completed, so either UK departure at the start of 2019 will take place without a full trade deal in place or the 2-year period will be extended. The best scenario for a recovery of the pound during the 2017-18 period would be for progress on a trade deal that might be called ‘EEA-lite” that is not the Norway model but something a little less that gives the UK some new border control powers, allows for less EU budget contributions with the benefit of some access to the Single Market, albeit not the full access like Norway currently has.

Essentially negotiations will always be about the costs (extent of free movement plus budget contribution) being balanced against the benefits (degree of access to the Single Market). The more the UK government moves back on Leave promises to improve Single Market access the better the pound may perform throughout the negotiation period after Article 50 is invoked.”