The UK has formally started the negotiation process for its exit from the European Union after 44 years as a member.
Today, Prime Minister Theresa May has triggered the Article 50 of the Lisbon Treaty which will start a two-year negotiation process for the divorce of Britain from the EU.
Earlier today, Britain’s ambassador to the EU Tim Barrow delivered a six page letter from May to EU Council President Donald Tusk in Brussels to kick off the formal exit of the UK from the EU.
In a statement to MPs, Theresa May said the UK is leaving the EU and there is “no turning back” on the decision.
UK citizens voted to exit the EU in a referendum on 24 June 2016.
May said: “We are going to make our own decisions and our own laws. This is a unique opportunity [for Britain]… A chance to step back and to ask ourselves what kind of country we want to be.
“We are going to set out a clear and ambitious plan with the European Union. A partnership for the best interest for the UK, the European Union and the wider world.
“We are leaving the European Union, we are not leaving Europe.”
May assured MPs that there will be a vote from both houses of Parliament before the official exit from the EU.
The Prime Minister added the letter handed to Brussels said the rights of EU citizens and their future in the UK will be an “early” priority of the negotiations.
Not a genuine shock
The European Council is expected to review the UK proposals contained in the letter triggering Article 50 and draft a consultation document with the EU position to be released on 27 April.
Wealth Management association deputy chief executive John Barrass tells Money Marketing this process will be “quiet” for the next four weeks and than it is when all the parties will have more information on the next steps of the negotiations.
SYZ Asset Management co-head of multi-asset and vice-chief investment officer Hartwig Kos says there is “very little room left” to worry about Brexit citing Donald Trump and his policies as well as European politics as more important factors to consider in the short term.
He says: “Triggering Article 50 could be a complete non-event. One could see a bit of volatility in the pound, which might well be skewed to a stronger Sterling given inflationary pressures in the UK and increasing questions about the Bank of England’s ultra-loose monetary policy stance.”
Kos says the bulk of a possible “Brexit pain” is only going to be seen in a few months from now, arguing May’s cabinet will soon realise negotiations with Europe are going to be “much harder than anticipated.”
Newton Investment Management fixed income portfolio manager Howard Cunningham says there is no rational reason why the triggering of Article 50 should be “a genuine shock” causing a sterling sell off or a collapse in gilt yields.
While he expects more volatility ahead though, Cunningham says currency markets, and not just sterling, are likely to be the most affected in the years to come.
He says: “To us, it seems likely that currency markets will be where most of the action will play out. Sterling is likely to take a few blows, as the trade and current account deficits start to weigh as long as negotiations continue.
“But depending on how acrimonious the fight and how disunited the EU-27 appear, the euro too may not emerge from the contest unscathed.”
However, James Athey, senior investment manager at Aberdeen Asset Management, expects gilts to remain expensive after today’s historical event.
He says: “We are not heavily positioned in the UK but do see gilts as being expensive and are thus positioned for underperformance there. We continue to express a cautious view on the Eurozone as they deal with both Brexit and their own domestic political concerns which, coupled with a new-found hawkishness at the ECB, should see wider spreads and a weaker currency.”