Theresa May’s speech outlining a possible transition period after Brexit may make it easier for the Bank of England to raise interest rates as soon as November.
While the prime minister largely skimmed over the economy in her highly anticipated remarks on Friday, she proposed for the first time that there be a two-year extension of the status quo as part of the UK’s exit from the European Union. That would mean Britain would be less likely to suffer the cliff-edge scenario of dropping out of the bloc with no deal.
Crucially, the BoE assumes a smooth Brexit for its economic forecasts. It will update those projections November 2, when there’s a chance it may also increase interest rates for the first time in more than a decade. While May’s speech in Florence, Italy didn’t go as far as might have been expected given the buildup, it did provide some new details on transition and payments to the EU.
“The real crunch will come next month when EU leaders judge whether sufficient progress has been made in the talks to begin trade negotiations,” said Dan Hanson and Jamie Murray, economists at Bloomberg Intelligence in London.
“May’s conciliatory tone was a step in the right direction. The Bank of England is likely to see her remarks as removing another potential barrier to lifting interest rates in November.”
In general, the response to May’s speech was that she may not have gone far enough.
JPMorgan Chase & Co economist Malcolm Barr said while the UK “has taken a limited step toward a more pragmatic stance on the initial legal exit from the EU that emerged over the summer, its position appears to remain deeply conflicted.”
James Knightley, at ING, said May’s speech was “conciliatory yet thin on details.” But while the cliff-edge possibility hasn’t disappeared, the chance of a transition deal — which would extend current EU-UK arrangements for 3 1/2 years — may encourage investment. “If there is a little more business optimism and this translates into stronger economic activity, this could see the Bank of England becoming more inclined to raise interest rates,” he said.
Meanwhile, the European Union is making it abundantly clear that it has more important issues to worry about than Britain’s departure from the bloc.
Now that the EU is finally out of crisis mode, it’s more interested in working on defence, monetary union and human rights than Brexit, according to the European Commissioner for Jobs and Investment Jyrki Katainen. 
He says that, aside from those officials specifically tasked with dealing with the UK’s exit talks, the rest of the Commission doesn’t even touch the subject on a weekly basis. “As important as it is to have a good deal and settle the situation, it doesn’t dominate the work of the EU at all,” Katainen said in an interview in Helsinki on Friday. 
“I’m not saying this because I would like to undermine the importance of these negotiations, but simply there are bigger issues on the agenda.”
Dominating the EU’s to-do list are the risk of cyber threats and hybrid attacks, a tighter monetary union and closer trade ties to the rest of the world, he said. The Commission targets finalising one trade deal with an external partner every six months, Katainen said.
The 45-year-old commissioner served as Finland’s finance minister and then prime minister during Europe’s debt crisis. 
He joined the EU Commission in 2014, first as its economy chief before overseeing a portfolio that targets job creation.
Katainen says he worries more about the development in Poland than in Britain. 
The EU Commission is investigating whether the government in Warsaw is living up to the bloc’s rule-of-law requirements in the first such probe of its kind of a member state. Poland risks being stripped of its voting rights in the EU if it’s found to have broken the rules.
“I’m deeply worried about the current breaches of rule of law in Europe,” Katainen said. 
“I think that all problems in fundamental rights issues — whether they are human rights issues, human dignity-related issues, or rule of law — are more serious problems than Brexit is. Because in Brexit, at the end of the day, it’s a matter of making compromises. But you cannot compromise on human rights or rule of law.”


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