Theresa May will test the nerves of currency markets on Tuesday when she declares that Britain is making a clean break from the EU and will not seek a deal that leaves the country “half in and half out”.
Mrs May’s comments will be seen as confirmation that Britain is leaving the single market — sometimes referred to as “a hard Brexit” — although she will leave open the door to the UK opting back in to parts of the customs union.
The pound briefly fell below the $1.20 mark on Monday — a level at which the currency has not regularly traded since 1985 — as markets prepared for Mrs May’s speech. The prime minister’s previous Brexit interventions have typically led to a fall in the pound.
But Mrs May’s speech to ambassadors and diplomats in London will also attempt to strike a conciliatory tone about the need for a “positive and constructive partnership between Britain and the EU”.
The prime minister’s team is concerned that Brexit talks, scheduled to begin this year, could quickly descend into an acrimonious row over the UK’s Brexit liabilities, estimated by Brussels at between €40bn and €60bn.
Unlike US president-elect Donald Trump, who revelled in the Brexit vote and who appears unconcerned about the prospect of the EU’s disintegration, Mrs May will say that it is “overwhelmingly” in Britain’s interests for the EU to succeed.
“We seek a new and equal partnership between an independent, self-governing, global Britain and our friends and allies in the EU,” she will say in the speech at Lancaster House.
“But it is not partial membership of the EU, associate membership or anything that leaves us half in, half out. We do not seek to adopt a model already enjoyed by other countries. We do not seek to hold on to bits of membership as we leave.”
Downing Street denied reports that Mrs May anticipated that her speech would cause a “market correction”, but the prime minister’s aides say she wants to provide clarity to business about her Brexit plans.
She will confirm she wants to restore control over Britain’s borders; senior officials say the Home Office is drawing up plans for a work permit scheme for EU workers alongside new automated security checks for EU visitors.
Limits on free movement are incompatible with single market membership, but Mrs May is expected to be more nuanced on her approach to the customs union, which provides for tariff-free and paperwork-free trade.
The prime minister is also expected to flag up the possibility of an “implementation phase” to smooth Britain’s exit, giving companies and the City of London time to adapt to a new regulatory regime.
Mrs May will use the speech to insist that “global Britain” will be a “secure, prosperous and tolerant country” and will urge those on both sides of the country’s bitter debate on EU membership to bury their differences and look to the future.
Mr Trump’s offer of an early US-UK free-trade deal has strengthened Mrs May’s negotiating hand in Brussels, but any sense of an “Anglo-Saxon plot” to undermine the EU would play extremely badly in Paris and other capitals.
Meanwhile Downing Street also repeated chancellor Philip Hammond’s warning that the UK could aggressively cut taxes and regulation if the EU tried to close it out of the single market, but stressed that it was a Plan B.
“We want to remain in the mainstream of a recognisable European tax system,” Mrs May’s spokeswoman said.
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