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UK CommentPreview of the PM's speech today

Today's speech unlikely to provide the clarity that Brussels is asking for
Prime Minister May will give a speech on the UK’s Brexit vision today (expected at 13:30 GMT). Some of the content has already been leaked to the media, and it appears that the speech is unlikely to provide the clarity that Brussels is asking for. May’s problem is trying to reach out to Brussels but at the same time please both the very vocal Brexiteers in her own cabinet and the Remainers in her own party who are threatening to team up with Labour in coming votes in Parliament. In her speech today, May will stick with her demand of a bespoke trade deal - “covering more sectors and cooperating more fully than any Free Trade Agreement anywhere in the world today”. The UK’s vision of Brexit has been labelled by the EU as “the three baskets”, as the UK wants to stay fully aligned with EU rules and regulation in some sectors (such as aviation), while breaking away partly in other sectors and breaking away fully in a last group of sectors. The EU has called the UK demands “pure illusion” and maintains that a country cannot simply cherry-pick the best parts of being an EU member. A hot topic that May probably will not provide any clarity on today is the Irish border. When the agreement to proceed with negotiations was reached in December, May promised that the UK government will ensure a frictionless border, but has not suggested how it will achieve this. The EU has suggested, as a fallback solution, that rules and regulation in Northern Ireland should stay aligned with those of Ireland and the rest of the EU in the case of no Brexit deal. But that suggestion has been flat out rejected by the UK government, as it claims it would be in conflict with the UK’s constitution. Tension between the two sides has increased over the past couple of days, contributing to a weakening of the pound. We believe May will try to strike a conciliatory tone today, and her previous speeches have, at least temporarily, been able to calm the markets and support the pound. However, given the internal conflict in the Tory party, it looks almost impossible for May to be able to offer anything tangible that could actually move negotiations forward.

Disclaimer

Kari Due-Andresen

Chief Economist Norway

Norway and UK

kadu01@handelsbanken.no

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