The EU summit has seen a more constructive tone from both sides and the hope is that there will be sufficient progress by December to allow talks to progress to the next stage. While progress has been insufficient and incremental, it is clear the direction of travel is for the UK to move toward the EU’s stance on citizens rights, ECJ jurisdiction, Ireland and the Brexit bill.
The exit bill will feature heavily over the coming weeks/months and ahead of the next EU summit in mid-December. European parliament president Tajani described the UK’s 20bn offer as “peanuts” with prior reports suggesting the EU’s stance is closer to 60bn. This is not palatable to the hard Brexiteers but it will be something that the Conservative Party will have to get a consensus on in addition to movement on the other aspects of the negotiations. The EU summit has seen a friendlier tone from both PM May and the EU27 as they focus on the positives and hopes of progress by December. What is clear, is that despite the UK recently talking up the prospect of a no deal, both sides see it as an advantage to have a smooth and orderly Brexit.
Allowing PM May not to walk away from the summit empty handed will hopefully allow greater breathing room and flexibility on the issue of money. Suggestions that PM May told the EU leaders that her Florence speech was not the last word on the issue of money has helped. The question ahead of the next round of talks next month will be what kind of consensus the UK government reaches on the Brexit bill and whether this will be palatable to the hard Brexiteers. The BoE rate outlook has been a more significant influence on UK assets than Brexit for much of this year. With markets pricing in a 2nd BoE rate hike with a near 100% probability, how Brexit negotiations develop will have an important impact on GBP and gilts.