UK business to warn May over ‘hard Brexit’ after pound plunges
British business leaders are to warn Theresa May against pursuing her current tilt towards a “hard Brexit” as a flash crash in the pound underscored mounting market concern about the UK government’s stance on exiting the EU.
On a day that saw sterling fall more than 6 per cent against the dollar before recovering most of its losses, a group of top executives said that any UK departure from the EU without maintaining special ties to Europe’s common market should be ruled out “under any circumstances”.
In a letter to Mrs May drafted by the CBI employers group seen by the Financial Times, the executives plead with the prime minister to take companies’ views more into account, amid fears that she is sidelining business as she plots her Brexit strategy.
“The government must set out a clear road map for consulting with firms of all sectors and sizes to increase confidence that these complex decisions are taken on the basis of fact and a genuine understanding of the economic implications,” the letter says.
Relations between the government and business reached a nadir following a series of speeches at the Conservative party conference this week that were strongly critical of UK business, including one by Mrs May herself.
The signals at the conference that the UK would put a clampdown on immigration ahead of remaining part of the EU customs union or single market and Mrs May’s attack on the “international elite” also prompted warnings from foreign leaders, including German chancellor Angela Merkel, that the EU would take a hard line in Brexit negotiations.
Business nervousness over Mrs May’s stance was heightened by the sterling flash crash on Asian markets. Shortly after they opened on Friday, the pound lost as much as 6.1 per cent, falling to $1.1841 in two minutes.
The shortlived drop sparked speculation that it could have been triggered by a mistaken “fat finger” trade or a rogue algorithm, exacerbated by thinner liquidity during early Asian hours. But it followed a week in which the currency had fallen steadily over growing worries about the effect on the UK economy of Brexit.
It recovered to trade at about $1.24, but remained at its lowest level since May 1985 and saw the biggest intraday drop against the dollar since its 11.1 per cent plunge on June 24 in the wake of the UK’s vote to leave the EU.
Philip Hammond, the chancellor, tried to restore calm, saying the government had not decided to pursue a “hard Brexit” and that sterling’s sudden fall was the sort of “turbulence” he expected for the next five years.
Speaking to journalists on the sidelines of the International Monetary Fund and World Bank annual meetings, he played down the tough language on migration heard at the Conservative conference, saying that the government’s only new firm commitment was to start the Article 50 process of leaving the EU by April 2017.
He even kept open the option of Britain staying in the EU customs union, which would prevent the country striking new trade agreements with non-EU countries after Brexit. “No decisions have been made about the customs union question. We are in the process of formulating our negotiating strategy,” he said.
Mark Carney, the Bank of England governor, said he thought the 6 per cent drop in sterling followed by a sharp recovery was a technical matter.
The number of trades that took place when sterling slumped was very low and it recovered significantly, meaning that officials were not concerned about the consequences for financial stability of insurance contracts being triggered by volatility.
Business leaders believe that Mrs May’s ministers who have advocated a full break from the EU, including Brexit minister David Davis, now have the upper hand in cabinet decision-making.
Mr Davis and Liam Fox, the international trade minister, have suggested reverting to World Trade Organisation rules to trade with Europe, but the letter warns that such a move would result in significant costs for British exporters and importers.
The CBI made clear in its letter that barrier-free access to the single market “is vital to the health of the UK economy, especially to our manufacturing and service sectors”. It added: “The government should give certainty to business by immediately ruling this [WTO] option out under any circumstances.”
Pressure on sterling came at the end of a week which has seen relations between the UK and EU looking highly polarised following Mrs May’s conference speeches.
Jean-Claude Juncker, the president of the EU commission, called on EU leaders to be “intransigent” with Britain when holding talks over the country’s departure from the bloc.
Mr Juncker also demanded that continental business leaders refrain from engaging in secret negotiations with the UK if they did not want to undermine the single market. “One cannot be one foot out and one foot in, and with the foot out destroying what we’ve built,” Mr Juncker said. – Financial Times