Daily Management Review

Analysts say Investors Should be Prepared to be Disappointed by Theresa May


Analysts say Investors Should be Prepared to be Disappointed by Theresa May
Next Tuesday, a speech on the Britain's divorce from the EU is expected to be given by the U.K.'s Prime Minister Theresa May.
However, skepticisms about the extent of clear details for financial markets on how she sees the future relationship between the U.K. and the EU unfolding that the prime minister will provide have been expressed by analysts.
"One should prepare to be disappointed on the level of detail," Kallum Pickering, senior U.K. economist at Berenberg, said.
Prime Minister May's remarks will reiterate that she will look for "the best possible deal for the U.K." and will be "more of the same" according to Pickering.
Ahead of triggering the formal process of leaving the EU, article 50, by the end of March, Theresa May promised to set out her approach to Brexit in the new year.
He cautions against expecting too much extra information from Theresa May's speech on Tuesday, said Richard Mylles, political analyst at Absolute Strategy.
"Theresa May is in a deceptively weak position when it comes to Brexit," Mylles said. She needs to please the Eurosceptic and Pro-EU members within her party even though Theresa May is more popular than the opposition leader.
"Fundamentally she has a very small majority," Mylles recalled. Prime Minister May supported the pro-EU campaign in the lead up to the referendum, Mylles added.
Nonetheless, details on migration, single market access, passporting rights and trade options are the things that analysts and investors will be looking for.
"Migration is the key" issue, Pickering from Berenberg said. Indications that Britain could opt for a "hard Brexit" - meaning that in order to control immigration, it will lose full access to the EU's single market have already been given by Prime Minister May who has voiced several times that her priority is regaining control of the U.K's borders.
"It's clear there's a tradeoff between migration and market access," Pickering added.
If there is no freedom of movement, there is no full access to the single market, European officials have expressed. So, the more restrictions will be imposed on accessing the common market, with the more immigration restrictions that Prime Minister May makes, he also said.
the free movement of goods generates about 25 percent of the EU's gross domestic product and accounts for 75 percent of intra-EU trade within the single market, according to Business Europe.
The future of the financial services in the U.K. is another key issue. It had dropped its demand that the U.K. should keep its passporting rights, the lobby group TheCityUK, said this week.
To market products to investors in the European region is allowed to a financial services firm by such rights.
"As a basic scenario we should not expect the U.K. to maintain its passporting rights," Pickering added.
The U.K. would likely trade with the EU under World Trade Organization rules in a scenario of a complete exit from the EU.
"In our view, we're heading towards WTO rules in the most likely scenario unfortunately," Mylles said.

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