Brexit Watch: More cause for optimism but price pressures grow

This week has brought further indications that the Government is leaning towards a soft(ish) form of Brexit and some sort of transitional arrangement. Meanwhile, the economy has continued to hold up well. But the adverse effects of sterling’s slump are becoming increasingly evident. The Government seems to be increasingly moving away from the “hard Brexit” rhetoric which had emerged in recent months. For example, Chancellor Philip Hammond’s comment that “thoughtful politicians” would support a “transitional” agreement once the UK leaves the EU has gained support this week from Brexit Secretary David Davis. And there have been suggestions too of continued budgetary contributions in exchange for access to the single market. Although sterling has lost ground against the dollar in light of expectations of tighter monetary policy in the US, it has not dropped as far as relative interest rate expectations would suggest on the basis of past form.