The UK government said it may walk out of trade talks with the EU by June if the two sides fail to make headway on a post-Brexit deal.
The pound fell by 0.8 per cent against the euro on Thursday as the government laid out its negotiating strategy.
The government wants a Canada-style comprehensive free trade deal and agreements on fishing rights, judicial cooperation and other areas including energy, aviation and civil nuclear cooperation, according to a paper published on Thursday.
It said if it did not make headway with its “fair and reasonable” proposals it would switch to preparing the UK for life without a deal.
Talks are due to start Monday and the government said it wanted the “broad outline” of an agreement before a high-level meeting in June that could be finalised by September.
“If that does not seem to be the case at the June meeting, the Government will need to decide whether the UK’s attention should move away from negotiations and focus solely on continuing domestic preparations to exit the transition period in an orderly fashion,” according to the 36-page document.
The document was released amid deep disagreements between the two sides about what a future deal would look like. The document said the government would not “negotiate any arrangement in which the UK does not have control of its own laws and political life”.
But the EU has indicated that the UK is expected to remain aligned to rules covering state subsidies, environmental standards and workers’ rights – a position that Prime Minister Boris Johnson is unlikely to agree to.
Britain left the European Union in January but is in a transitional phase until the end of the year when it follows its rules and enjoys the benefits including a single market and freedom of movement for people and goods.
Whatever the outcome of the talks, businesses have been warned to expect disruption at ports and its border with EU-member the Republic of Island as Britain leaves the single market and economic union.
UAE currency: the story behind the money in your pockets
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Education: Master’s degree in special education, preparing for a PhD in philosophy.
Favourite activities: Bungee jumping
Favourite quote: “My people and I will not settle for anything less than first place” – Sheikh Mohammed bin Rashid.
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Will the pound fall to parity with the dollar?
The idea of pound parity now seems less far-fetched as the risk grows that Britain may split away from the European Union without a deal.
Rupert Harrison, a fund manager at BlackRock, sees the risk of it falling to trade level with the dollar on a no-deal Brexit. The view echoes Morgan Stanley’s recent forecast that the currency can plunge toward $1 (Dh3.67) on such an outcome. That isn’t the majority view yet – a Bloomberg survey this month estimated the pound will slide to $1.10 should the UK exit the bloc without an agreement.
New Prime Minister Boris Johnson has repeatedly said that Britain will leave the EU on the October 31 deadline with or without an agreement, fuelling concern the nation is headed for a disorderly departure and fanning pessimism toward the pound. Sterling has fallen more than 7 per cent in the past three months, the worst performance among major developed-market currencies.
“The pound is at a much lower level now but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Mr Harrison, who manages more than $10 billion in assets at BlackRock. “We will see this game of chicken continue through August and that’s likely negative for sterling,” he said about the deadlocked Brexit talks.
The pound fell 0.8 per cent to $1.2033 on Friday, its weakest closing level since the 1980s, after a report on the second quarter showed the UK economy shrank for the first time in six years. The data means it is likely the Bank of England will cut interest rates, according to Mizuho Bank.
The BOE said in November that the currency could fall even below $1 in an analysis on possible worst-case Brexit scenarios. Options-based calculations showed around a 6.4 per cent chance of pound-dollar parity in the next one year, markedly higher than 0.2 per cent in early March when prospects of a no-deal outcome were seemingly off the table.
Bloomberg
'The Sky is Everywhere'
Director:Josephine Decker
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Rating:2/5
The specs: 2019 BMW X4
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Engine: 3.0-litre turbocharged in-line six-cylinder
Transmission: Eight-speed automatic
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Fuel economy, combined: 9.0L / 100km
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Europe’s rearming plan
- Suspend strict budget rules to allow member countries to step up defence spending
- Create new "instrument" providing €150 billion of loans to member countries for defence investment
- Use the existing EU budget to direct more funds towards defence-related investment
- Engage the bloc's European Investment Bank to drop limits on lending to defence firms
- Create a savings and investments union to help companies access capital
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The specs
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SPECS
Engine: Two-litre four-cylinder turbo
Power: 235hp
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Transmission: Nine-speed automatic
Price: From Dh167,500 ($45,000)
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