Article / 15 August 2017 at 12:08 GMT

Constructive ambiguity?

Head of Trading / The ECU Group plc
United Kingdom
  • UK headline and core inflation steady at 2.6% and 2.4%
  • British government's preparations for Brexit entering a new phase
  • Tory politician David Davis flags government's desire for special EU partnership
  • A reduction of uncertainty around Brexit talks could have big implications
EU and British flags
 Clarity would be a fine thing. Photo: Shutterstock

By Neil Staines

“Today marks the start of an intensification of our preparations for our exit from the EU” — 
David Davis

This week, apart from the transient diversions of the monetary policy meeting minutes from both the Federal Open Market Committee (Wednesday) and the European Central Bank (Thursday), it is all about the UK. 

After this morning’s inflation data (which showed both headline and core inflation unchanged at 2.6% and 2.4% respectively), we have the release of retail sales data for July and the June employment report. Perhaps more importantly for sterling and sentiment towards the UK, however, is the steady release of government papers outlining what Tory politician David Davis described this morning as the “new deep and special partnership the UK wants to build with the EU” and setting out the “key issues for the government’s approach to that partnership”.

As parliament returns from summer recess this week, the government is under no illusion that clarity, direction and a united, cohesive approach to the proceedings is desperately needed. Davis, who is the secretary of state for exiting the EU, sets out the strategic intentions of the UK in this morning’s City AM (ahead of a series of “future partnership papers”), where it is clear that his jottings are intended for many distinct audiences and issues.

The article begins by stressing the desire for a new “deep and special partnership”, and to draw on the expertise of external parties — addressing criticism of isolationism and the involvement/inclusion of UK businesses. Davis also addresses (i) the freest and most frictionless possible trade, (ii) the development of policy to build a stronger, more prosperous, more outward looking UK than ever before, with (iii) no return to the borders of the past between Ireland and Northern Ireland. Not to mention greater clarity over the government’s desire for a transition period during which the UK would be part of a “temporary customs union”.

Davis went on to say, in a subsequent interview, that “constructive ambiguity” is vital for negotiations. We partly agree with this sentiment — it is after all a negotiation (and a very significant one). However, due to the significance of this negotiation, it is critical (at least from this point forward) that constructive ambiguity does not stray (back?) towards disruptive uncertainty, or even worse.

“Paying good wages is not in opposition to good productivity” — James Sinegal

Last week, we discussed our increasingly confident view that the UK (and the US) are likely closer to wage inflation and therefore a major pivot point for price pressure, expectations, interest rate structure and monetary policy. We maintain that view. Indeed, if the uncertainty surrounding the Brexit negotiating position is clarified (even very modestly) by the government papers to be released this week, the implications are potentially very significant.

In that regard, the June UK employment data will be keenly watched, not just for continued erosion of labour market slack, but increasingly for tentative signs of a recovery in long-elusive wage pressure. To paraphrase the economist Rudi Dornbusch, we are of the opinion that wage inflation likely, “takes a much longer time coming than you think, and then it happens much faster than you would have thought”.

— Edited by John Acher

Neil Staines is head of trading at The ECU Group


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail