UK and EU settle on Brexit agreement ahead of Sunday summit

The UK and European Union have agreed upon a draft text of future ties post-Brexit, leaving many decisions over post-divorce ties to be settled during the transition period.

After briefing her cabinet, Prime Minister Theresa May confirmed on Thursday afternoon that she and European Commission president Jean-Claude Juncker had discussed the structure of a political declaration that would "deliver" for the UK. May was due to give a statement to the House of Commons later in the afternoon.

The political declaration promised a “broad deep and flexible partnership across trade and economic cooperation”.

The text, which appeared to have five pages added since it was shown to the cabinet on Tuesday, including some more positive political language that appeared designed to help the document through parliament, indicated that the post-Brexit relationship would include a “deep” customs cooperation and a commitment to build on a “single customs territory”, including “free trade areas" and wider "sectoral co-operation where it is in the mutual interest of both parties”.

Definite arrangements on future customs, regulatory alignment and membership of key EU bodies was left to be resolved during the transition period, with the aim to form a trading relationship that is “as close as possible”, with a “view to facilitating the movement of goods”, if not quite the frictionless level that May desired.

Entitled 'Political declaration setting out the framework for the future relationship between the EU and the UK', the document sets out other political intentions including “respecting the result of the 2016 referendum" insofar as enabling Britain to develop an independent trade policy and end free movement of people with the EU.

Britain has also vowed to keep the EU in the European convention on Human Rights as a “basis for cooperation”.

Leaders of the 27 other member states will meet at a summit on Sunday to decide whether to sign off the deal.

The document was produced by UK and EU negotiators after May met Juncker in Brussels on Wednesday, even although significant difficulties were reported to have arisen during the talks. Issues were said to include Madrid's concerns over Gibraltar and French fishing angst, with an EU diplomat telling the Financial Times there was "a genuine feeling of concern and incomprehension" that Spain was willing to risk a Brexit deadlock.

But May said she had spoken overnight to Spanish prime minister Pedro Sanchez and was "confident that on Sunday we’ll be able to agree a deal that delivers for the whole UK family, including Gibraltar".

.@EU_Commission agreed today the draft Political Declaration on the framework of the future EU-U.K. relationship. I have informed @eucopresident that this text is agreed at negotiator level and in principle at political level, subject to endorsement by Leaders on Sunday. #Brexit pic.twitter.com/VCNnEqxptJ

— Jean-Claude Juncker (@JunckerEU) November 22, 2018

After the declaration emerged, the pound rallied more than 1% against the dollar to above 1.29 before quickly giving up half that gain, while it jumped 0.6% versus the euro to 1.1291.

Analyst David Cheetham at XTB said the deal "appears that the relationship may more closely resemble the existing one than previously thought" and some of the passages about "deep" cooperation inspired traders to rushed and buy the pound.

"Overall these comments appear to be a case of the EU supporting Theresa May’s deal and throwing their weight behind it...and given the recent negativity around Brexit there’s plenty of scope for a relief rally should this move gain traction."

Simon Harvey, market analyst at Monex Europe, said the "reaction itself is more telling than its magnitude" and pointed to some of the political language used.

"After having Theresa May on the rack for weeks the European Union seemed to realise today a Brexit deal won’t happen without domestic political support in the UK. A bone was therefore thrown May’s way ahead of Sunday’s summit. Some lines in the draft treaty seem to be put specifically in there to appease hard Brexiteers, like that the EU respects UK’s “independent trade” policy.

"Such symbolic gestures by the EU may prove priceless for May, as it could aid the arduous job of getting the current draft deal through parliament, but the devil will be in the detail if this proves enough to unite a fractured party," Harvey said.

While the "deep" regulatory cooperation is not quite May’s expected 'frictionless' trade, Harvey said this was a breakthrough in progress to boost sterling, though currency traders are not on the home straight yet.

"Questions regarding May’s ability to navigate her draft deal through Parliament and whether all EU countries will sign off on the deal remain, along with the likely Brexiteer reaction.

"This has undoubtedly capped sterling’s kneejerk reaction this morning."

"The British people want this to be settled. They want a good deal that sets us on course for a brighter future. That deal is within our grasp and I am determined to deliver it." – PM @Theresa_May pic.twitter.com/5ZhLs5IV1K

— UK Prime Minister (@10DowningStreet) November 22, 2018

MAY'S FULL STATEMENT

Speaking outside 10 Downing Street Theresa May said: "Last week we achieved a decisive breakthrough when we agreed with the European commission the terms for our smooth and orderly exit from the EU. Alongside that withdrawal agreement, we published an outline political declaration setting out the framework for our future relationship. Last night in Brussels I had a good, detailed discussion with President Juncker, in which I set out what was needed in that political declaration to deliver for the United Kingdom.

"We tasked our negotiating teams to continue working overnight, and as a result the text of that declaration has been agreed between the European Union and the United Kingdom.

"I have just updated the cabinet and I shall be making a statement to the House of Commons later this afternoon.

"This is the right deal for the UK. It delivers on the vote of the referendum. It brings back control of our borders, our money and our laws, and it does so while protecting jobs, protecting our security and protecting the integrity of the United Kingdom.

"The agreement we have reached is between the UK and the European commission. It is now up to the 27 leaders of the other EU member states to examine this agreement in the days leading up to the special EU council meeting on Sunday. I will speaking to my counterparts during that time, including meeting Chancellor Kurz of Austria here in Downing Street later today.

"Last night I spoke to the Spanish prime minister, Pedro Sanchez, and I am confident that on Sunday we’ll be able to agree a deal that delivers for the whole UK family, including Gibraltar.

"On Saturday I will return to Brussels for further meetings with President Juncker, where we will discuss how to bring this process to a conclusion in the interests of all our people.

"The British people want this to be settled. They want a good deal that sets us on course for a brighter future. That deal is within our grasp, and I am determined to deliver it.