Pound sinks as EU bets UK will back down in Brexit talks

Kumutha Ramanathan
·Contributor
·2-min read
The European Union and UK flags flying outside tje House of Parliament in London as part of a Brexit protest
Despite tense negotiations, analysts say they expect both sides to keep working towards an agreement beyond the mid-October EU Summit. Photo: Getty

The pound slipped in mid-day trading in London following reports that the European Union is betting that the UK will back down on previous Brexit demands, resulting in the bloc having no plans to offer concessions ahead of next week’s Brexit deadline.

The pound fell sharply against the euro (GBPEUR=X), dropping by 0.3% at around 12:20pm in London. It also headed down against the dollar (GBPUSD=X) by 0.3%.

The EU intends to allow Brexit talks to drag out until November or December, beyond the 15 October deadline, according to Bloomberg. The report also states that the EU may even take a chance on Johnson pulling the plug on the deliberations rather than compromise on its red lines, the news agency said, quoting a senior EU diplomat. The high-stakes strategy was confirmed by a second EU official.

The pound slipped around 12pm in London following news that the EU was prepared to call the UK's bluff in Brexit talks.
The pound slipped around 12pm in London following news that the EU was prepared to call the UK's bluff in Brexit talks.

In recent weeks, Johnson has taken a more conciliatory approach to negotiations, telling the EU last week that the deadline of 15 October wasn’t considered the final date for concluding a deal but rather the point at which to establish an agreement.

Many unresolved issues remain, including how the UK may be able to diverge from EU state aid rules in the future as well as rules around how the UK will access fishing waters.

Despite Johnson’s softened approach, the EU has been more strident, saying it doesn’t expect negotiations to advance by the proposed Brexit deadline unless the prime minister personally intervenes, the diplomat said.

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The European Commission previously announced it would send a “letter of formal notice” to the UK for breaching the “good faith” terms of the withdrawal agreement with its Internal Markets Bill, which undermines the bloc’s authority on a number of fronts.

Despite tense negotiations, UBS analysts say they expect both sides to keep working towards an agreement beyond the mid-October EU Summit as they believe the mutual determination to avoid compounding the economic challenges posed by the COVID-19 pandemic will ensure that disruption to trade and economic activity at the end of the transition period is minimal.

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