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Pound up as markets shrug off Boris Johnson's no-deal Brexit speech

Oscar Williams-Grut and Tom Belger
·4 min read

Watch: Boris Johnson calls for ‘Australia solution’ to Brexit trade talks

UK prime minister Boris Johnson has told Britain to get ready for an “Australian-style” Brexit, signalling that trade talks with the EU were now effectively “over.”

The announcement sparked a fierce backlash from business leaders and immediately knocked sterling. The pound soon recovered however, as investors continue to expect a deal despite UK and EU leaders’ war of words and significant divisions.

The prime minister said in a televised address on Friday that the UK would opt for a no-deal Brexit unless there was a “fundamental change in approach” from the EU.

“From the outset, we were totally clear that we wanted nothing more complicated than a Canada-style relationship based on friendship and free trade,” Johnson said.

“To judge by the latest EU summit in Brussels, that won’t work for our EU partners.”

Prime Minister Boris Johnson leaves 10 Downing Street to attend Prime Minister's Questions, at the Houses of Parliament, London.
Prime minister Boris Johnson leaves 10 Downing Street, London. Photo: PA

The prime minister said he “had to make a judgement” about the likely outcome of negotiations, with just 10 weeks to go until the end of the transition period.

“I’ve concluded that we should get ready for 1 January with arrangements that are more like Australia’s, based on simple principles of free trade,” he said.

“We will prosper mightily as an independent free trading nation.”

Shortly after Johnson’s statement, European Commission president Ursula von der Leyen said the EU would “continue to work for a deal, but not at any price.”

“As planned, our negotiation team will go to London next week to intensify these negotiations,” she tweeted.

However, the UK prime minister’s spokesperson told lobby journalists on Friday afternoon: “The trade talks are over. The EU have effectively ended them by saying that they do not want to change their negotiating position.”

The Downing Street spokesperson said there was “no point” in EU negotiators travelling to London unless they were “prepared to discuss all of the issues on the basis of legal texts in an accelerated way, without the UK being required to make all of the moves.”

Sterling’s losses were limited however, with many investors still expecting a deal. It was hovering close to flat and even traded slightly higher both the euro (GBPEUR=X) and dollar (GBPUSD=X) on Friday afternoon.

Neil Wilson, chief market analyst at Markets.com, said the rhetoric was mainly “for the crowds,” with the possibility talks could continue despite previous UK government threats to walk away if no deal had been struck by 15 October.

“Time is tight but a thin or skinny trade deal ought to be accomplished. An informal meeting of heads of state in Berlin scheduled for 16 November may be the crunch point.”

Analysts at Oxford Economics said they still saw a deal as “marginally more likely than not,” given it was in both sides’ interests. “Though the rhetoric has ratcheted up, substantively little has changed in UK-EU trade talks.”

Johnson’s statement comes after the passing of his self-imposed deadline of 15 October. The prime minister said at the start of September that the UK must reach a deal with the EU on future trading relations by mid-October, or would walk away from talks.

Negotiations between the two sides appear to have lost momentum in recent days. Lord David Frost, the UK’s chief Brexit negotiator, tweeted on Thursday evening he was “surprised” and “disappointed” that the EU had moved away from plans for intense, daily negotiations agreed at the start of the month. The EU has said that “all future moves must come from UK,” Lord Frost said.

WATCH: What are the consequences of a no-deal Brexit?

Britain will leave the Brexit transition period on 1 January 2021. It needs to agree on a trade deal well before then in order to give both sides time to ratify the deal. Negotiations have stalled on issues such as state aid and fisheries.

Asked about the severe economic upheaval facing carmakers under a no-deal Brexit at a Downing Street press conference late on Friday, Johnson said he had "no doubt" such sectors could prepare by the end of the year.

READ MORE: One in four UK firms stockpiling for Brexit disruption

The Institute of Directors said on Friday that a quarter of businesses were stockpiling in anticipation of disruption at the end of the Brexit transition period.

Additional reporting by Tom Belger.