May confirms 'hard Brexit' though final plan will face vote in parliament

Theresa May confirmed the UK will seek a new free-trade agreement rather than membership of the European Union's single market when it leaves the European Union, but said the final Brexit deal will be put to a vote in both houses of parliament.

In speech on Tuesday that firmed up the government's plans for a 'hard Brexit', the Prime Minister said that the UK's desire for controls over immigration "cannot mean remaining in the single market".

Speaking at Lancaster House, the venue that saw Margaret Thatcher launch Britain’s membership of the single market in 1988, May said: “We seek a new and equal partnership – between an independent, self-governing, global Britain and our friends and allies in the EU. Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out.”

But while she would like to retain elements of customs union membership, May said she wanted Britain "to be able to negotiate its own trade agreements. I also want tariff-free trade with Europe and cross-border trade there to be as frictionless as possible.

"That means I do not want Britain to be part of the common commercial policy and I do not want us to be bound by the common external tariff. These are the elements of the customs union that prevent us from striking our own comprehensive trade agreements with other countries. But I do want us to have a customs agreement with the EU."

As she laid out her 12-point plan, May set an objective for a two-year time frame to agree the Brexit deal, followed by a phased transition phase.

She said that Britain would continue to be “reliable partners, willing allies and close friends” with Europe, while attempting to argue that the referendum last June was not a vote against EU values and "represents no desire to become more distant to you, our friends and neighbours”.

May said that she does not want to see the unravelling of the EU and wanted it to succeed, in an apparent response to President-elect Donald Trump, who recently said he expected other countries to the leave the bloc.

She said that cooperation between the two parties was not just needed for trade, but also for security, as the country will continue to collaborate on crime, terrorism and foreign affairs.

The PM added that Britain aimed to maintain a common travel area with Ireland, the UK’s only shared border with the EU, as the country would always have a “special relationship” with Ireland.

Pound rebound in reaction

As concerns over a ‘hard’ Brexit grew ahead of May’s much-leaked speech, the pound had dropped below $1.20 against the dollar on Monday but bounced back more than 2% boost on Tuesday morning, helped by earlier strong inflation data.

But while the majority of what May had to say had been leaked ahead of the press conference, analyst Craig Erlam at Oanda said the confirmation of parliamentary votes was seized upon by the market on Tuesday.

"The one revelation that stood out though was the intention to put any deal before parliament, which in theory should tip the balance slightly further away from a hard Brexit even if May acknowledged that we will not be seeking access to the single market. This triggered a rally in the pound which in turn was the catalyst for the short squeeze that followed, sending it 2.5% higher against the dollar on the day," he said.

Kathleen Brooks, research director at City Index, said the detail around the proposed new customs deal with the EU also would have lifted the pound as well as May’s objective for a two-year time frame to agree the Brexit deal, and a phased transition phase after that.

It is worth remembering that since the Brexit vote last June, rallies in the pound have been fairly weak, while sell offs have been harsh and prolonged. It is too early to know if the negative impact of politics on the UK currency is starting to wane.

Neil Wilson at ETX Markets said it was a far less hawkish Brexit speech than many had feared, though he pondered if May was a "wolf in sheep’s clothing".

"Arguably Theresa May’s greatest trick appears to have been to deliver what amounts to a fairly hard Brexit message without the markets going into a flat spin. Some judicious leaks in the last couple of days had primed investors for the UK to be leaving the single market. Many expected a tough sounding speech that would send the pound lower – that could yet happen as we progress towards invoking Article 50. And the looming Supreme Court judgment still matters a great deal," Wilson said.