Hard Brexit vs Soft Brexit
A lot of the discussions that have surrounded the UK’s decision to extricate themselves from the EU have largely been centred (up until this point) on a will they/won’t they debate. However, now it has been decided that ‘yes they will’, with Theresa May confirming that she will push for a ‘Hard Brexit’.
The term Hard Brexit is there to illustrate that May wants to take back all of the control for things like immigration and trade. Under a Hard Brexit, the UK would renege on full access to the single market and full access of the customs union along with the EU. In addition, it would prioritise Britain to have full control over its borders and full control over immigration quotas.
For the time being, however, the UK would lose their trade rules with the EU, and whilst they work to agree new ones it is likely that they would fall back to using World Trade Organisation (WTO) rules.
Consequently, polls indicate that the British population do in fact want a Soft Brexit, where some trade agreements remain, immigration is shared and policed centrally, and there is a residual sense of the single-market. May confirms that this simply won’t be the case.
So What About Jobs?
Off the back of May’s speech, the pound fell, but so did the job prospects. About 71,000 jobs hang in the balance, and will only be decided once the UK starts discussions post March 2017. However, that is likely to increase all the while that uncertainty abounds about investment, economic growth and industry.
For now, around 35,000 jobs in the City are in danger. This are finance sector jobs, and will be culled or moved to the EU for various banking and regulatory reasons. The irony is now, however, British workers can’t move with those jobs because they will may no longer have the right to work and live in an EU country after 2019 so it is likely local workers (or those from other EU states) will be employed to fill the vacancies.
Some think that there is still a chance that the UK will back out of the Brexit, but May is holding firm. At the moment, however, we aren’t sure of what will happen between now and March, when Article 50 is set to be triggered.
It is thought that Britain will redouble their efforts to start informal talks, but Brussels’ line on this is that there will be ‘no discussions without notification’. In the meantime, economic uncertainty will continue.
But the idea that this will all be wrapped up within two years of March 2017 is also starting to be questioned. Trade experts say that the final agreement could take several years to negotiate, and will be subject to sign off by the remaining 27 EU states. As the Guardian put it, this leaves “open the possibility of almost endless haggling by every member with something to ask of Britain – think, for example, of Spain and Gibraltar”.
So What Happened On Friday?
At just after 7 minutes after hour (19:00 on the East Coast of the US, just after midnight in London, and the early hours of Friday in Asia), the GBP suddenly and unexpectedly dropped more than 6%. But what was more shocking was the speed in which this happened. The entirety of the drop took little over 2 minutes, with the majority of the plunge happening in just 30 seconds.
So why did it happen? Well, although the Bank of England is investigating further, many believe it may have been the result of algorithmic trading which was able to pick up on news or market moves before humans could intervene. Other’s are pointing the finger at human error, which was then exacerbated by black box trading. Whoever is to blame, the GBP is suffering as it is still low in the major currency pairings.
But flash crashes aside, the British economy seems a little fragile at the moment. Even though we have more indication from the British PM, we still aren’t any closer to knowing what is going on in regards to the Brexit, and the GBP in particular will continue to reflect that uncertainty going forward.