Sterling may be suffering after doubts over second phase of Brexit talks

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Mortgage & Finance News

Oct 20

Sterling could be feeling the pressure amid concerns that European Union (EU) leaders won’t agree to the start of the second phase of Brexit negotiations.

The EU leaders have been in Brussels for a crucial summit to assess the progress made with the UK due to leave the union in March 2019, following last year's referendum result.

Despite the lobbying from Prime Minister Theresa May today’s EU leaders summit seems set to declare that insufficient progress has been made to justify moving Brexit negotiations on to the next stage. Instead the leaders will probably indicate that the situation will be reviewed the next time they meet.

May made a personal appeal to her EU counterparts at a working dinner, telling them that "we must work together to get to an outcome that we can stand behind and defend to our people".

But attention now shifts to the December summit, and the need for a breakthrough there grows greater with every passing week, as far as Britain is concerned.

German Chancellor Angela Merkel said there were "encouraging" signs of progress in Brexit negotiations and suggested formal trade talks could begin in December.

Despite reservations that progress is slow, she said the process was advancing step by step, adding: "I have absolutely no doubt that if we are all focused - and the (Theresa May) speech in Florence (the previous time the EU leaders met) made a contribution towards that -- we can achieve a good result. From my side there are no indications at all that we won't succeed."

And there are schools of thought that suggest poor UK retail sales data have weighed on Bank of England (BoE) rate hike expectations yesterday, leaving the pound in a weaker position against most of its peers.

A significant slide in UK retail sales in September saw Sterling lose ground -- retail sales fell by -0.7% on the month rather than the -0.2% anticipated.

Given that the services sector is the driving force behind UK economic output, this sign of sliding consumer spending weighed on growth forecasts for the third quarter.

Phil McHugh, a trading floor manager who provides dealing and hedging services at Currencies Direct, said: "Influential UK data is limited until Wednesday of next week, when the nation will publish third quarter growth data. A slowing in output may encourage the BoE to leave interest rates unchanged in November, weakening the pound in the process."