REPORT
By Gökhan Kurtaran
London letter, Feb. 20

- May’s negation strategy will soon be tested

Next month the U.K. government is expected to trigger Article 50, which would give a two-year timeframe for the U.K. to leave the union and complete the deal with EU member countries. However, according to the Chancellor Philip Hammond, two years might not be enough for the U.K. to reach a full deal on every chapter with 27 members of the union. British attempts to “blackmail and divide” EU countries in the run-up to Brexit negotiations could lead to a disastrous “crash-landing” out of the bloc, European politicians have told the Guardian.  They add that the approach being pursued by U.K. Prime Minister Theresa May’s government will leave the U.K. without a free trade deal – with perilous consequences for the country.

By triggering article 50, both the U.K. and EU most probably will start playing their best cards in accordance to what is in their hands. The different strategies among the mainly big members of the EU, Germany and France will be closely watched and May’s diplomatic negotiation skills will be tested during the Brexit process.

Elections in Germany and France will also play an important role in the U.K.’s negotiation strategy. France’s former economy minister from Hollande’s socialist government, Emmanuel Macron is becoming the favorite candidate against Marine Le Pen of the National Front. However, Macron, whose opinion polls suggests a win in May's election, told Channel 4 News, "We have to preserve the rest of the European Union and not to convey the message that you can decide to leave without any consequence.”

Incoming data last week shows that U.K. retail sales contracted unexpectedly.

Last week the U.K.’s retail sales, including fuel, unexpectedly contracted by 0.3 percent in January, versus the projected 1 percent month-on-month. Annual sales came in significantly sluggish at 1.5 percent compared to the 3.4 percent forecasted and 4.3 percent in December. The rise in food and fuel prices are likely the major reasons for the second month of contraction in retail sales.

Moreover, inflationary pressures are also worrying. Inflation reached its highest rate for two and a half years, mainly due to the rising price of fuel. Annual inflation as measured by the Consumer Price Index reached 1.8 percent last month, the Office for National Statistics (ONS) said, up from a rate of 1.6 percent in December.

This is the fourth consecutive month that the rate has risen and has taken inflation to its highest level since June 2014. Food and fuel prices contributed to the inflation rise.

20 Feb,2017

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