Wednesday 05 September 2018 5:59 pm

Sterling jumps on report Germany and UK could offer key Brexit concessions

The pound jumped today on reports that Germany and the UK may be prepared to offer key concessions in the Brexit negotiations.

Germany and the UK will accept a less detailed deal on the future trading relationship between the UK and the EU in order to secure a withdrawal agreement and avoid a no-deal Brexit, Bloomberg reported, citing anonymous sources.

City A.M. previously revealed that EU member states are preparing a “fudge” agreement on withdrawal in order to give more “breathing space” for trade talks.

The prospect of the UK leaving the EU without a deal on 29 March 2019 has alarmed businesses and some politicians on both sides of the Channel. A withdrawal agreement would avoid that outcome, providing for a transitional period after Brexit. However, the withdrawal agreement has been a key sticking point up to now.

Sterling jumped against the US dollar to as high as $1.2983 after the report, although it pared most of its gains after a German government spokesperson said the Brexit position was unchanged.

Jordan Rochester, a global foreign exchange strategist at Nomura, said the report represented a “kicking the can down the road/fudge exercise” in a note to clients.

Markets would welcome a less ambitious aim for talks this year owing to the length of time it will take to agree a full trade deal, he added.

Negotiators are currently understood to be aiming for a withdrawal agreement by November, beyond the official deadline of October, giving enough time for a deal to be ratified by European parliaments just before Brexit.

A compromise on the withdrawal agreement would provide a boost to the governing Conservative party as it struggles to persuade its own members that the so-called Chequers plan for Brexit can survive. The plan was named after the Prime Minister’s rural retreat, where the majority of the Cabinet agreed it.

Brexit secretary Dominic Raab and May’s top Brexit adviser, Olly Robbins, today defended the Chequers plan in a hearing of the European Scrutiny Committee.

In a rare public appearance for the influential civil servant, Robbins said the Chequers plan “respects the autonomy of the EU and the sovereignty of the UK, and provides for a pragmatic future relationship with the EU”.

However, in a sign of the difficulties ahead of the government in knife-edge votes in parliament, veteran Eurosceptic MP Sir Bill Cash said the government should “put Chequers out of its misery”, adding it “is now effectively dead and satisfies no one”.

Cash is a member of the Eurosceptic European Research Group of Tory MPs understood to be readying a new proposal for a free trade agreement based on the Canada model, with a looser alignment on goods than Chequers envisages.

This is being prepared in parallel with a lengthy alternative Brexit plan, backed by former Brexit secretary David Davis, which wil be published this month.