Cable traders are suffering through a news overload this morning, with the optimism and euphoria which sent the pound to two month highs as recently as 2 days ago fading fast on speculation whether UK PM Theresa May will be able to engineer a Brexit breakthrough in time. And following overnight speculation that her cabinet may revolt, and what one desk dubbed "headline havoc" this morning in which DUP sources saying that there will be no deal this week, it’s looking increasingly in jeopardy.
Overnight the Telegraph and Bloomberg reported that Theresa May is facing a revolt from inside her Cabinet over her plan to keep U.K. regulations aligned with the European Union after Brexit, "a split that threatens to undermine her chances of breaking the deadlock in negotiations." Foreign Secretary Boris Johnson and Environment Secretary Michael Gove "will lead a Cabinet revolt against Theresa May over fears she is forcing a soft Brexit" the Telegraph reported. While this is hardly the first time we’ve heard this sort of speculation, considering the closeness to the EU Council Summit next Thursday/Friday, the clock is ticking for May to come up with a solution.
That may be tricky because with just days to go until a deadline to get talks back on track and the pound sliding for a second day, May is struggling to get the Northern Irish party that props up her government to sign up to her Brexit strategy. Wednesday had been tipped as the day May could head back to Brussels to resume talks that suffered an embarrassing breakdown on Monday. Explaining the tension, DB’s Oliver Harvey believes the question of a December breakthrough is now in doubt after the DUP rejected the proposed compromise over Northern Ireland’s status after Brexit, and so scuppering talks. He notes that the failure of the UK to reach agreement is problematic for four reasons. 1) the DUP appears to have drawn a red line over continued regulatory alignment between Northern Ireland the Republic. 2) proposed regulatory alignment between Northern Ireland and the Republic has emboldened leaders of other devolved administrators, most notably in Scotland. 3) the rejection of the deal has emboldened some hard Brexiteers within the Conservative Party, and 4) time is now tight.
In short, the UK must reach a final agreement by the end of this week to have a chance of reaching sufficient progress at next week’s Council.
Meanwhile, EU officials have repeatedly said that an agreement needs to come in this week to be able to discuss at the Summit in time. May could return to Brussels as early as Wednesday to continue talks, a Downing Street official said. However the DUP might prevent that:
Uh oh, hold your fire. A DUP source: "No deal this week". Hopes now fading fast in No10 of Theresa May going back to Brussels on Thursday too. https://t.co/QesRvn4crr— Tom Newton Dunn (@tnewtondunn) December 6, 2017
And then there was the "headline havoc" with Reuters first stating that:
DUP SAYS "NO PLANS TODAY" FOR PHONE CALL BETWEEN LEADER ARLENE FOSTER AND UK PM THERESA MAY
Followed by this from Bloomberg:
DUP SAID TO DEMAND SIGNIFICANT CHANGES TO TEXT ON BORDER
Separately, Bloomberg adds that the Irish government views the chances of a deal this month as falling, and adds that the collapse presented May with three unappealing options:
- change her Brexit policy,
- risk a constitutional crisis in the U.K., or
- face the prospect of a no-deal split from the EU.
For a context of timing, the EU and UK are both aiming to get close enough to an agreement this week so that a summit of leaders on Dec. 14 can give the green light for talks to move on to the future relationship early next year. Almost 18 months on from the referendum, the UK Cabinet has yet to set out the future relationship it wants with the EU. Eight months since May triggered the divorce proceedings, negotiations have barely made progress. In March 2019, Britain will leave the bloc, with or without a deal and the longer talks drag on, the greater the chance of a messy exit.