The UK Prime Minister’s plan to commence the process of leaving the European Union by March 2017 will likely increase the possibility of a ‘hard Brexit’, according to Franklin Templeton.
In a note to investors, Franklin Templeton Fixed Income Group head of European fixed income David Zahn commented that Prime Minister Theresa May’s proposed timing is a “strange choice” given its proximity to major elections in Germany and France.
“I would question why a leader would start such a potentially bruising process knowing that two of the most important leaders with whom she will have to negotiate will not be focused on Brexit for at least the following six months, and likely even longer in the event of victory by new administrations looking to implement new domestic agendas,” he said.
Mr Zahn cautioned investors not to view the recovery in the pound sterling as evidence that the risks of leaving the EU had been exaggerated.
“Optimists point to the relatively positive UK macroeconomic data since the June 23 vote as evidence that the concern over Brexit has been overplayed, but it’s important to remember that nothing has actually happened yet,” he explained.
“The United Kingdom remains part of the EU, with all the costs and benefits that membership brings.”
A hard Brexit, wherein the UK loses full access to the single market and customs union, is looking more likely now than it has since the referendum, Mr Zahn said, which could prompt further falls in the pound and further monetary easing.