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UK, EU Reportedly Agree to Tentative Brexit Deal on Financial Services

02 November 2018

However, sterling rose against the dollar and euro following the report, adding to earlier gains after officials said Britain and the European Union had made progress on a deal to give London's dominant financial centre basic access to the bloc's markets after Brexit.

The positive momentum seemed rather unaffected by disappointing UK manufacturing PMI and dismissal of the news regarding a Brexit financial services deal by the UK/EU officials.

Another British official also speaking on condition of anonymity said that, while there was progress, nothing was finalised yet.

"The economic outlook depends significantly on the nature of European Union withdrawal, in particular the form of new trading arrangements between the European Union and United Kingdom and whether the transition to them is abrupt or smooth and how households, businesses and financial markets respond", he said.

Barnier called the report "misleading", while British Prime Minister Theresa May's spokesman played it down as "speculation".

The Bank's latest report highlights the balancing act policymakers would face, as it seeks to support growth while preventing runaway inflation should the pound crash.

It stood at a weekly high of about $1.29 around 0730 GMT.

It extended those gains on a signal from the central bank that it stood ready to raise rates in response to early signs of the economy overheating.

The pound enjoyed its best day of the year on Thursday as a market heavily short the currency rushed to adjust to the possibility that a Brexit deal will be clinched in the coming weeks - removing a major uncertainty overshadowing the economy and the BoE as it tries to bring inflation back to target.

The bank rate is now at 0.75 percent and Carney said that it would rise "in a limited and gradual fashion" up to 2021 to about 1.5 percent. It quoted government sources as saying that the EU would guarantee British companies access to European markets as long as British financial regulations remained largely in line with those of Europe.

The measure would be an insurance policy to ensure there will be no return of customs checks on the border between Ireland and Northern Ireland if a future trading relationship deal is not in place in time.

But Raab's ministry later admitted there was "no set date for the negotiations to conclude".

"Equivalence" has so far had limited application because, for one under existing rules, market access can be withdrawn unilaterally with only a month's notice, " The Times said.

In a letter to the House of Commons Exiting the EU Committee, Mr Raab wrote: "I would be happy to give evidence to the committee when a deal is finished and now expect November 21 to be suitable".

The report added to overnight optimism triggered by the UK Brexit Secretary Dominic Raab's letter to the House of Commons Brexit Committee, saying that he expected to finalize a deal with the European Union by November 21, and prompted some aggressive short-covering move around the GBP/USD major.

UK, EU Reportedly Agree to Tentative Brexit Deal on Financial Services