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‘No turning back’: PM May triggers ‘historic’ Brexit

The Big Ben clock tower is seen in London, Britain March 29, 2017. REUTERS/Hannah McKay

By Guy Faulconbridge and Elizabeth Piper

LONDON (Reuters) – Prime Minister Theresa May formally began Britain’s divorce from the European Union on Wednesday, saying there was “no turning back” from a decision pitching her country into the unknown and triggering years of fraught negotiations.

Nine months after Britons voted to leave, May notified EU Council President Donald Tusk in a letter that Britain was quitting the bloc it joined in 1973.

“The United Kingdom is leaving the European Union,” May later told parliament in London. “This is an historic moment from which there can be no turning back.”

The prime minister, an initial opponent of Brexit who won the top job in the political turmoil that followed the referendum vote, now has two years to settle the terms of the divorce before it comes into effect in late March 2019.

May, 60, has one of the toughest jobs of any recent British prime minister: holding Britain together in the face of renewed Scottish independence demands, while conducting arduous talks with 27 other EU states on finance, trade, security and other complex issues.

The outcome of the negotiations will shape the future of Britain’s $2.6 trillion economy, the world’s fifth biggest, and determine whether London can keep its place as one of the top two global financial centers.

For the EU, already reeling from successive crises over debt and refugees, the loss of Britain is the biggest blow yet to 60 years of efforts to forge European unity in the wake of two world wars.

Its leaders say they do not want to punish Britain. But with nationalist, anti-EU parties on the rise across Europe, they cannot afford to give London generous terms that might encourage other member states to break away.

BREXIT DIVORCE

May’s notice of the UK’s intention to leave the bloc under Article 50 of the EU’s Lisbon Treaty was hand-delivered to Tusk in Brussels by Tim Barrow, Britain’s permanent representative to the EU.

Barrow gave the letter to Tusk, the EU summit chair and former Polish prime minister, in the Council President’s offices on the top floor of the new Europa Building, according to a Reuters photographer in the room.

That moment formally set the clock ticking on Britain’s two-year exit process. Sterling, which has lost 25 cents against the dollar since the June 23 referendum, jumped to $1.25.

May signed the Brexit letter on Tuesday, pictured alone at the cabinet table beneath a clock, a British flag and an oil-painting of Britain’s first prime minister, Robert Walpole.

BREXIT DEAL?

The 6-page letter set a positive tone for the talks though it admitted that the task of extracting the UK from the EU was momentous and that reaching comprehensive agreements within two years would be a challenge.

May wants to negotiate Britain’s divorce and the future trading relationship with the EU within the two-year period, though EU officials say that will be hard given the depth of the relationship.

“We believe it is necessary to agree the terms of our future partnership alongside those of our withdrawal from the EU,” May told Tusk in her letter, adding that London wanted an ambitious free trade agreement with the EU.

“If, however, we leave the European Union without an agreement the default position is that we would have to trade on World Trade Organization terms,” she said.

May has promised to seek the greatest possible access to European markets but said Britain was not seeking membership of the ‘single market’ of 500 million people as she understood there could be no “cherry picking” of a free trade area based on unfettered movement of goods, services, capital and people.

Britain will aim to establish its own free trade deals with countries beyond Europe, and impose limits on immigration from the continent, May has said.

In an attempt to start Brexit talks on a conciliatory note, May said she wanted a special partnership with the EU though she laced that ambition with an a clear linkage of the economic and security relationship.

EU leaders will welcome assurances of a constructive approach and appreciate a commitment to remain a close partner for the EU and to encourage its development, as well as an explicit recognition that Britain cannot retain the best bits of membership after leaving.

They may be less warm to an implication that Britain could live with a breakdown of talks on trade coupled with what might be seen as a threat to disrupt the security and counter-terrorism cooperation for which Britain, as a member of the U.S.-backed Anglophone Five Eyes system, is highly valued.

“We should work together to minimize disruption and give as much certainty as possible,” May said. “Weakening our cooperation for the prosperity and protection of our citizens would be a costly mistake.”

Tusk said the EU would seek to minimize the cost of Brexit to EU citizens and businesses and that Brussels wanted an orderly withdrawal for Britain.

“We already miss you,” Tusk said. “Thank you and goodbye.”

Within 48 hours, Tusk will send the 27 other states draft negotiating guidelines. He will outline his views in Malta, where he will be attending a congress of center-right leaders. Ambassadors of the 27 will then meet in Brussels to discuss Tusk’s draft.

“DAMN NARROW TIME-FRAME”

But the course of the Brexit talks – and even their scope – is uncertain.

“The time-frame is damn narrow,” said Martin Schaefer, a spokesman for the German Foreign Ministry.

A huge number of questions remain, including whether exporters will keep tariff-free access to the single market and whether British-based banks will still be able to serve continental clients, not to mention immigration and the future rights of EU citizens in the UK and Britons living in Europe.

One major uncertainty for May is who will be leading France and Germany, which both face elections this year.

“It’s bad news for everybody. It’s a wedge pushed into the European project,” said French centrist presidential candidate Emmanuel Macron, who has made clear he would ensure Britain gains no undue advantages outside the Union.

UNITED KINGDOM?

At home, a divided Britain faces strains that could lead to its break-up. In the Brexit referendum, England and Wales voted to leave the EU but Scotland and Northern Ireland voted to stay.

Scottish nationalists have demanded an independence referendum that May has refused. In Northern Ireland, rival parties are embroiled in a major political crisis and Sinn Fein nationalists are demanding a vote on leaving the UK and uniting with the Republic of Ireland.

May said she knew that triggering Brexit would be a day of celebration for some and disappointment for others.

“Now that the decision to leave has been made and the process is under way, it is time to come together,” she said.

(Additional reporting by Alastair Macdonald, Jan Strupczewski and Yves Herman in Brussels, Michel Rose in Paris and Kylie MacLellan, William James, Estelle Shirbon, Kate Holton, Paul Sandle and Anjuli Davies in London; Writing by Guy Faulconbridge; Editing by Mark Trevelyan, Peter Millership and Giles Elgood)

EU leaders to meet for special Brexit summit on April 29: EU’s Tusk

European Council President Donald Tusk takes part in a news conference after being reappointed chairman of the European Council during a EU summit in Brussels, Belgium, March 9, 2017. REUTERS/Yves Herman

By Waverly Colville

BRUSSELS (Reuters) – The European Union’s 27 leaders will meet on April 29 to agree their negotiating lines for Brexit talks after London sends in a formal notification that it wants to leave the bloc, the chairman of the summit, Donald Tusk, said on Tuesday.

The meeting is a necessary step before the negotiations between Britain and the 27 remaining EU states can start formally. London said on Monday it would send in its exit notification on March 29.

“In view of what was announced in London yesterday, I’d like to inform you that I will call a European Council on Saturday, the 29th of April, to adopt the guidelines for the Brexit talks,” Tusk told reporters.

“You know I personally wish the UK hadn’t chosen to leave the EU, but the majority of British voters decided otherwise. Therefore we must do everything we can to make the process of divorce the least painful for the EU.”

The unprecedented talks are due to run for two years, though many diplomats and officials admit it would probably take longer.

“Our main priority for the negotiations must be to create as much certainty and clarity as possible for all citizens, companies and member states that will be negatively affected by Brexit, as well as our important partners and friends around the world,” Tusk added.

(Writing by Jan Strupczewski and Gabriela Baczynska)

EU tries to contain East-West schism as Brexit bites

European and national flags fly outside the European Parliament while European Commission President Jean-Claude Juncker presents a white paper on options for shoring up unity once Britain launches its withdrawal process, in Brussels, Belgium, March 1, 2017. REUTERS/Yves Herman

By Alastair Macdonald

BRUSSELS (Reuters) – As Britain hands the European Union its formal notice to quit this month, Brussels is resigned to losing part of the EU’s western flank but is increasingly stressed that upset in the east is pulling the survivors further apart.

Poland, the biggest of the ex-communist eastern states to join after the Cold War, has picked a fight over the fairly minor matter of who chairs EU summits. Symptomatic of a mounting east-west friction, the spat will overshadow a meeting this week that was meant to forge post-Brexit unity.

Brexit has not created that friction but made it worse, as leaders struggle to quell popular disaffection with the EU that is by no means confined to Britain. Westerners are talking up faster integration, even if that means leaving nationalistic easterners behind in a “multispeed Europe”.

When Chancellor Angela Merkel, raised in East Germany and a key defender of eastern allies, joined her French, Italian and Spanish peers at Versailles on Monday to ram home a message that unless some states press ahead the EU will stall and break, Polish ruling party leader Jaroslaw Kaczynski hit right back.

“The decisions made in … Versailles … aim to reinforce the process of European Union disintegration which has started with Brexit,” he said on Tuesday.

Kaczynski will not be in Brussels for Thursday’s summit but his prime minister, Beata Szydlo, will give voice to his refusal to endorse the reappointment of her centrist predecessor Donald Tusk as European Council president. Tusk and the right-wing Kaczynski are old and bitter rivals in Polish politics.

BREXIT HOLE

Brexit deprives the easterners, unwilling to see diktat from Brussels or Berlin replace rule from Moscow, of their strongest ally against EU centralization and euro zone domination.

It also leaves a big hole in the EU budget for paying the subsidies that fund a large slice of public spending in the east — cash that has kept voters there sold on EU membership and which Brussels fears London may now use to court eastern favor and divide the EU to extract better Brexit terms.

On Friday, leaders will work on plans for a March 25 summit in Rome where they hope to use 60th anniversary celebrations of the bloc’s founding treaty to pledge a new unity after Brexit.

Yet the road to Rome has been marked with division over the push by founding powers and the EU executive led by Jean-Claude Juncker for more differentiated EU integration.

“The key message of Rome must be the unity of the 27,” said a senior EU official involved in looking for compromises to ease the friction. “The political context of Brexit should not be a multispeed Europe. That would be completely out of tune.”

Neither side is pushing for a split and all insist they must pull together against challenges from Russia and uncertainty about U.S. support under President Donald Trump. For that reason, officials say, the words to come out of the Brussels and Rome summits will stress unity and soft-pedal the differences.

FRICTION GROWING

But east-west friction has heated up in the past two years.

There are rows over eastern reluctance to take in Syrian refugees and Kaczynski’s new policies that Brussels calls undemocratic. New border controls to curb migrants inside the passport-free Schengen zone have fueled eastern fears of losing travel freedoms cherished since the fall of the Berlin Wall.

And there is a brewing crisis over what eastern leaders see as hypocritical protectionism inside the EU single market by western governments trying to impose their own national minimum wages on enterprising — and cheap — eastern “posted workers”, who offer services like trucking and construction in the west.

Last week Poland and its allies demanded Brussels crack down on the “double standards” of firms that offer lower quality versions of western food brands in eastern markets.

It is not just outspoken Poland and Hungary who fret at fragmentation. The worry runs from the Baltic to the Black Sea. Eastern diplomats fear a new gap could open up along the old Iron Curtain that may never close, especially if the rich states play up to voters and refuse to fill the EU’s Brexit budget gap.

Prime Minister Robert Fico told Slovakia’s parliament on Wednesday he was skeptical of the Union’s future once Britain leaves in 2019.

“I’m afraid the EU will be divided by the money issue after 2020…In the spirit of Trump’s ‘America first’, we can expect to hear ‘Germany first’, ‘France first’ etc.”

Noting that current EU arrangements already allow for states to deepen their cooperation — the euro is just one of many examples — a senior diplomat from an eastern member state said he was suspicious of assurances from Merkel and others that any new moves would always be open to any member state to join.

“The only new thing they can mean is that this has changed,” he said. “They are saying ‘No, you are not welcome any more’.

“This is very dangerous.”

(Additional reporting by Lidia Kelly and Justyna Pawlak in Warsaw and Tatiana Jancarikova in Bratislava; Editing by Gareth Jones)

Tight deadline for talks after nationalist surge in Northern Ireland

Sinn Fein President Gerry Adam sand Sinn Fein leader Michelle O'Neill speak to media outside the Sinn Fein offices on Falls Road in Belfast, Northern Ireland March 4, 2017. REUTERS/Clodagh Kilcoyne

By Ian Graham

DUBLIN (Reuters) – Northern Irish leaders prepared on Saturday for three weeks of challenging talks to save their devolved government after a snap election that could have dramatic implications for the politics and constitutional status of the British province.

The pro-British Democratic Unionist Party narrowly remained the largest party after the closest-ever election for the provincial assembly. But surging Irish nationalists Sinn Fein came within one seat of their rivals to deny unionist politicians a majority for the first time since Ireland was partitioned in 1921.

Major policy differences between the sides risk paralyzing government, dividing communities and creating an unwelcome distraction for Prime Minister Theresa May as she prepares to launch Britain’s formal divorce proceedings from the European Union later this month.

Northern Ireland is the poorest region of the United Kingdom and potentially the one most economically exposed to Brexit, as its frontier with the Republic of Ireland is the UK’s only land border with the EU.

“The election yesterday was in many, many ways a watershed election. Clearly the notion of a permanent or a perpetual unionist majority has been demolished,” Sinn Fein President Gerry Adams told reporters in Belfast.

“We need to reflect on that and so do the leaders of unionism and so does everyone on this island,” he added, standing in front of a mural of Bobby Sands, a member of the militant Irish Republican Army (IRA) who died in a hunger strike in prison in 1981.

The two largest parties have three weeks to form a new power-sharing government to avoid a return to direct rule from London for the first time since 2007. Sinn Fein said it would make contact with the other parties on Sunday.

GENERATIONAL SHIFT

With relations at their lowest point in a decade and Sinn Fein insisting among its conditions that DUP leader Arlene Foster step aside before it will re-enter government, few analysts think an agreement can be reached in that time.

An acrimonious campaign also added to the friction. Foster antagonized nationalists with her outright rejection of some of Sinn Fein’s demands, saying: “If you feed a crocodile, it will keep coming back looking for more.”

Michelle O’Neill, the 40-year-old new leader of Sinn Fein whose elevation represented a generational shift within the former political wing of the IRA, benefited most from the highest turnout in two decades.

“Foster angered nationalists and made sure they went out to vote but Michelle O’Neill is also a much more acceptable nationalist face than previously,” said Gary Thompson, a 57-year-old voter, as he went for a jog near parliament buildings.

Pensioner Tom Smyth, a DUP supporter, said Foster had to stand up to Sinn Fein but in doing so probably helped mobilize her rivals’ vote.

“This is terrible,” he said. “There will be no living with them (Sinn Fein) now. All my life there has been a Unionist political majority. I feel a bit exposed now and wonder what the future holds.”

Nationalist candidates, traditionally backed by Catholics, narrowed the gap overall with unionists, who tend to be favored by Protestants, to just one seat. Smaller, non-sectarian parties captured the remaining 12 percent of the vote.

IRISH UNIFICATION

Northern Ireland is still marginally a mainly Protestant province but demographics suggest Catholics could become the majority within a generation. The shift in the election will embolden Sinn Fein in its ultimate goal of leaving the United Kingdom and uniting the island of Ireland.

The party has increased calls for a referendum on the issue since Northern Ireland, like Scotland, voted to remain in the EU while the United Kingdom’s two other countries, England and Wales, chose to leave in last year’s Brexit vote.

Sinn Fein’s Mairtin O’Muilleoir, the province’s outgoing finance minister, described Brexit as “the gift that keeps on giving” for those that want a united Ireland.

“The massive shift towards nationalism in this election completely changes the landscape and most certainly brings the constitutional question to the foreground,” said Peter Shirlow, Director of Irish Studies at the University of Liverpool.

Britain’s Northern Ireland Minister James Brokenshire urged the parties to engage intensively in the short time available. Ireland’s foreign minister said both governments stood ready to provide whatever support was needed.

Former Northern Ireland first minister David Trimble, a key player in the 1998 Good Friday peace agreement that ended three decades of sectarian bloodshed, said the British government should find a way to give the parties more time.

Senior unionist politician Jeffrey Donaldson told BBC Radio:

“If we can’t do it in three weeks it could be a prolonged period of direct rule.

“In those circumstances, with Brexit coming down the road, we won’t have our own administration to speak for us and offer the best prospect of delivering the kind of outcome we need.”

(Writing by Padraic Halpin; Editing by Mark Trevelyan)

Northern Ireland talks to begin after transformative election

Sinn Fein elected candidates for East Belfast (L to R) Fran McCann, Orlaithi Flynn, Pat Sheehan and Alex Maskey pose on stage at the count centre in Belfast, Northern Ireland March 3, 2017. REUTERS/Clodagh Kilcoyne

By Ian Graham

The pro-British Democratic Unionist Party narrowly remained the largest party following the closest-ever election for the provincial assembly. But surging Irish nationalists Sinn Fein came within one seat of their rivals to deny unionist politicians a majority for the first time since Ireland was partitioned in 1921.

Major policy differences between the sides risk paralyzing government and dividing communities just as Britain prepares to leave the European Union. Northern Ireland, the poorest region of the United Kingdom, which has its only land border with the EU, is considered the most economically exposed to Brexit.

“Everything has changed and we enter into a new political landscape from Monday,” outgoing finance minister Mairtin O’Muilleoir of Sinn Fein told national Irish broadcaster RTE.

The two largest parties have three weeks to form a new power-sharing government to avoid devolved power returning to London for the first time since 2007.

An acrimonious campaign also added to the friction. Foster’s outright rejection of some Sinn Fein’s demands by saying that “if you feed a crocodile, it will keep coming back looking for more” antagonized and rallied nationalists.

Michelle O’Neill, the 40-year-old new leader of Sinn Fein whose elevation represented a generational shift within the former political wing of the Irish Republican Army, benefited most from the highest turnout in two decades.

Pensioner Tom Smyth, a DUP supporter, said Foster had to stand up to Sinn Fein but in doing so probably helped mobilize their rivals’ vote.

IRISH UNIFICATION

Nationalist candidates, traditionally backed by Catholics, also narrowed the gap overall with unionists, who tend to be favored by Protestants, to just one seat. Smaller, non-sectarian parties captured the remaining 12 percent of the vote.

The party has increased calls for a border poll since Northern Ireland, like Scotland, voted to remain in the EU while the United Kingdom’s two other countries, England and Wales, chose to leave.

Sinn Fein’s O’Muilleoir described Brexit as “the gift that keeps on giving” for those that want a united Ireland.

Taking over the administration of Northern Ireland is not a prospect likely to please British prime minister Theresa May, already fighting a renewed independence push from Scotland as she readies her Brexit launch at the end of the month.

Her Northern Ireland Minister James Brokenshire urged the parties to engage intensively in the short time available.

Former Northern Ireland first minister David Trimble, who was instrumental to the 1998 Good Friday peace agreement that ended three decades of sectarian bloodshed, said the British government should find a way to give the parties more time.

“If we can’t do it in three weeks it could be a prolonged period of direct rule,” Jeffrey Donaldson, a senior member of the DUP told BBC Radio.

“In those circumstances, with Brexit coming down the road, we won’t have our own administration to speak for us and offer the best prospect of delivering the kind of outcome we need.”

(Writing by Padraic Halpin; Editing by Catherine Evans)

Poll sees Irish nationalist vote up in Northern Ireland election

Tellers count ballots in the Northern Ireland assembly elections, in Ballymena, Northern Ireland March 3, 2017. REUTERS/Clodagh Kilcoyne

BELFAST (Reuters) – Turnout was higher among Irish nationalist voters than pro-British unionists in elections in Northern Ireland on Thursday, an online exit poll indicated, but it was unclear if it would be enough to shift the balance of power in the British province.

Nationalists who favor a united Ireland and unionists who want Northern Ireland to remain British are jostling for position ahead of talks on Britain’s exit from the European Union, which is set to determine the province’s political and economic future.

Opinion polls ahead of the election indicated that the pro-British Democratic Unionist Party would lose votes but remain the largest party, followed by Irish nationalists Sinn Fein.

An online exit poll by Lucid Talk found that turnout appeared to be 2-3 percent higher among nationalist voters compared to an election year ago while turnout for unionist voters was unchanged.

“People seem to be more engaged on the Republican side to come out and vote,” said Bill White, managing director at Lucid Talk. “That differential turnout could come into play when last seats are in play.”

While analysts say Sinn Fein is unlikely to become the largest party for the first time – an outcome that would turn Northern Ireland politics on its head – a strong showing could help them secure concessions from the DUP.

Sinn Fein is insisting that DUP leader Arlene Foster step aside before it will consider re-entering government. While the DUP have rejected this outright, a poor result might force her to step down.

The largest unionist and nationalist parties after the election will have three weeks to form a power-sharing government to avoid devolved power returning to the British parliament at Westminster for the first time in a decade.

While no one predicts the impasse will bring a return to the violence that killed 3,600 people in the three decades before a 1998 peace agreement, some are warning of a deterioration in community relations coupled with government paralysis as Brexit talks determine the province’s political and economic future.

Sinn Fein brought on the election by collapsing the power-sharing government in January over the role of the DUP in a scandal over heating subsidies that could cost the state 500 million pounds. The DUP deny wrongdoing.

(Reporting by Ian Graham and Conor Humphries; Editing by Angus MacSwan)

UK economy picks up in late 2016 but signs of Brexit hit appear

Workers walk to work during the morning rush hour in the financial district of Canary Wharf in London, Britain, January 26, 2017. REUTERS/Eddie Keogh

By Andy Bruce and William Schomberg

LONDON (Reuters) – Britain’s economy sped up at the end of 2016, data showed, but over the whole year it was weaker than previously thought and there were signs that the Brexit vote will increasingly act as a brake on growth in 2017.

The pound fell after Wednesday’s Office for National Statistics (ONS) figures, which no longer showed Britain was the fastest-growing major advanced economy last year.

Gross domestic product rose by 0.7 percent in the fourth quarter, faster than the preliminary reading of 0.6 percent thanks to manufacturing and the strongest growth since the fourth quarter of 2015.

The figures are likely to reinforce finance minister Philip Hammond’s view that there is no case right now to borrow more to help the economy when he announces his annual budget on March 8.

But he will keep a close eye on warning signs in Wednesday’s data.

Business investment fell and slowing household spending growth raised questions about the outlook for 2017.

The ONS also trimmed its estimate for 2016 growth to 1.8 percent from 2.0 percent, due to businesses stockpiling fewer goods and materials in early 2016.

That pushed Britain’s economic growth rate slightly below Germany’s 1.9 percent.

Separate ONS data showed Britain’s dominant services sector expanded in December at the slowest pace in seven months.

Angus Armstrong, director of macroeconomics at the National Institute of Economic and Social Research, said the familiar pattern of consumers driving the economy was likely to fade.

“The UK economy needs another driver if it is not to have a significant slowdown in 2017,” he said. “The pattern of strong consumer spending and weaker business investment can only be a limited one.”

Business investment fell 1.0 percent in the fourth quarter compared with the July-September period. Investment by companies was 0.9 percent lower compared with the fourth quarter of 2015.

Firms are expected to rein in their investment plans as Britain negotiates its departure from the EU, a process that Prime Minister Theresa May is due to kick off in coming weeks.

The outlook for wages is key for spending by households who have driven Britain’s economy since the Brexit vote. Wednesday’s data showed compensation of employees edged up by 0.1 percent in the fourth quarter, the weakest rise in more than three years.

BREXIT SQUEEZE

The ONS said household spending increased 0.7 percent on the quarter, slowing from 0.9 percent in the third quarter and marking the weakest growth in a year.

Bank of England deputy governor Minouche Shafik said after the data that the central bank still expected overall economic growth this year of 2.0 percent, much stronger than most economists polled by Reuters expect.

But the bank also predicts a growing squeeze on consumers as inflation rises due to the pound’s fall since June’s vote to leave the European Union.

There are signs this has started. Data last week showed retail sales fell in each of the three months to January.

The BoE this month signaled that it is in no hurry to raise interest rates with so much Brexit-related uncertainty ahead.

The central bank expects the economy to grow at a slower pace in subsequent years than if Britain had voted to stay in the EU.

(Editing by John Stonestreet)

Momentum and risk: world economy enters 2017 with winds fore and aft

By Jonathan Cable and Nichola Saminather

LONDON/SINGAPORE (Reuters) – Factories across the world fired up – or at least kept up activity – in January with some registering multi-year output highs, just as a barrage of political risks threatens the global economy with potential harm.

Rising protectionism from the United States, concerns over how Britain’s negotiations on leaving the European Union will pan out, and national elections in Europe’s largest economies all lie ahead.

But entering 2017, economic growth gathered momentum, according to surveys released on Wednesday, following on from last year thanks to a bounce in consumption.

Euro zone factories registered the fastest activity rate for nearly six years, China’s activity expanded for the sixth month and Japanese manufacturing growth was the fastest in almost three years.

Even in Britain, where a slump in sterling since the June referendum stoked the sharpest rise in factory costs on record last month, growth remained robust.

There were also signs of growth in Brazil, where industrial output rose in December at its fastest monthly pace in 2-1/2 years after one of the worst years on record.

“So far momentum is pretty strong heading into 2017,” said Jacqui Douglas at TD Securities. “But political risks are definitely one of the biggest this year and given the surprises we had through 2016 it’s really hard to tell what’s in store.”

Among unexpected events last year was Britain’s vote to leave the EU and the election as U.S president of Donald Trump, both seen as the result of anti-establishment anger among voters who feel left out of the wealth of nations.

Signs of concern this may spread could be found on bond markets. The premium investors demand to hold France’s government debt rather than that of similar economies shot up on so-called Frexit fears – the possibility that the far-right National Front might win the presidential election and try to take the country out of the euro zone.

IHS Markit’s final manufacturing Purchasing Managers’ Index for the currency bloc rose to 55.2 in January from December’s 54.9, its highest since April 2011. A Markit/CIPS UK factory PMI edged down to 55.9 from December’s 2-1/2 year peak of 56.1, matching the consensus forecast in a Reuters poll.

Anything above 50 indicates growth.

A similar survey for the United States due later on Wednesday is expected to show factories in the world’s largest economy also increased activity.

TOKYO TEMPERING TRUMP

A stronger dollar helped major economies such as Japan, where export orders surged, Markit/Nikkei PMI numbers showed, a welcome sign for the economy along with recent data suggesting a more durable recovery may be underway.

However, those encouraging signals sit uncomfortably with the growing threat from Trump’s trade policies. Japan is moving to temper the risks with plans to show Trump its firms are ready to create U.S. jobs, according to a document whose contents were revealed to Reuters.

In export-reliant Asia, and other regions where global supply chains are closely interlinked, Trump’s election is a particular risk to both world trade and broad economic growth if the new president follows though on his “America First” policies.

“The uncertainty surrounding future market access to the U.S. is bound to weigh on investment activity as companies await regulatory certainty,” said Frederic Neumann, co-head of Asian economic research at HSBC in Hong Kong.

“I suspect there’s going to be a lot of capital expenditure expansion projects that will be put on hold as long as the uncertainty surrounding the trade environment persists.”

In China, the world’s second-biggest economy, growth was led by an investment and construction boom that has helped spur global growth. Its official PMI stood at 51.3 in January, slowing marginally from 51.4 in December.

Analysts question whether Chinese growth will be sustainable once the impact of earlier stimulus begins to wear off and if the property market cools. They warn a slowdown in the Asian economic powerhouse could ripple across the region and beyond.

“Within China, we expect that real estate will slow down, because the government is quite keen to contain housing prices,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong.

Other regional economies like Indonesia showed positive momentum in manufacturing activity, while Indian factory activity returned to modest growth in January, bouncing from a contraction in December triggered by the government’s scrapping of high value banknotes.

Even in laggard South Korea where manufacturing contracted for the sixth straight month, exports rose at the fastest pace in nearly five years.

“We remain quite cautious how much of an acceleration in growth we can see in this pretty challenging climate,” Oxford Economics’ Kuijs said.

“Things like PMI are timely indicators of the hard data but sometimes they do run ahead, and the improvement in actual data doesn’t materialize.”

(Editing by Jeremy Gaunt)

NATO, Russia and trade top the agenda for Trump talks with Britain’s May

By Steve Holland and Elizabeth Piper

WASHINGTON (Reuters) – U.S. President Donald Trump and British Prime Minister Theresa May, who share an unusual bond as the products of anti-establishment uprisings, will sit down on Friday for what could be a difficult search for unity on NATO, Russia and trade.

The meeting will mark Trump’s first with a foreign leader since taking power a week ago, and it could go a long way toward determining how crucial Trump considers the traditional “special relationship” between the two countries.

Trump rode an anti-Washington wave to win on Nov. 8, and May gained power in July after the “Brexit” vote that has put her country on a path to separate from the European Union. The meeting will conclude with a joint White House news conference.

Trump has declared NATO obsolete and expressed a desire for warmer ties with Russia. May considers the trans-Atlantic alliance crucial and is skeptical of Russian President Vladimir Putin.

They both want to begin work on a bilateral trade agreement, which for May would provide proof of stability amid the Brexit breakup and for Trump would support his belief that he can negotiate one-on-one trade pacts.

“They both need this to be a success,” said Heather Conley, a European expert at the Center for Strategic and International Studies think tank.

Trump, she said, “needs to demonstrate that he has a command of issues” while May “needs to hear strong messages of support for her vision of a Britain that works for everyone, a global Britain.”

May, in a speech to Republican lawmakers gathered in Philadelphia on Thursday, suggested she saw the need for some reforms in NATO and for more countries to pay more to the alliance to help fund it, which has been Trump’s main complaint about NATO.

“America’s leadership role in NATO – supported by Britain – must be the central element around which the alliance is built,” May said.

But she said that EU nations “must step up” to ensure NATO remains the cornerstone of the West’s defense.

Trump and May also seem somewhat at odds over how to deal with Russia. In her speech, May said Western leaders should “engage but beware” of Putin and should not accept Putin’s claim that Eastern Europe is now in his sphere of influence.Trump, on the other hand, wants a strong U.S. relationship with Russia to fight Islamic State militants.

“I don’t know Putin, but if we can get along with Russia, that’s a great thing,” Trump told Fox News’ Sean Hannity” on Thursday. “It’s good for Russia, it’s good for us.”

(Reporting by Steve Holland and Elizabeth Piper; Editing by Leslie Adler)

Dollar steadies after stumble, Brexit ruling saps sterling

woman walks past electronic board with stock market numbers on it

By Marc Jones

LONDON (Reuters) – The dollar and world stocks tip-toed higher on Tuesday, as signs of a revival of worldwide economic activity helped ease some of the caution triggered in recent days by U.S. President Donald Trump’s focus on protectionism over fiscal stimulus.

Talk of trade wars rumbled in the background but was offset as Japanese manufacturing showed the fastest expansion in almost three years and a 5-1/2 year peak in French business activity provided the latest proof of a nascent euro zone recovery.

European stocks made modest gains as the data helped bolster a 2-1/2 year high in commodity stocks and as merger talk swirling around two of Italy’s big insurers fueled a 1 percent jump in shares in Milan.

There was also the expected confirmation that Britain’s parliament will have to approve the start of the Brexit process, though sterling dropped on news that assent will not be needed from pro-EU Scotland or Northern Ireland.

It was largely fine-tuning however, with both the pound and the euro, as well as the Japanese yen already pushed back by the dollar as its index clawed its way back above the 100 point threshold breach on Monday.

“Most of the PMIs around the world have been quite strong so there is no bad news here, but the protectionism above stimulus story (from Trump) has given the dollar bulls reason for pause,” said Saxo bank’s head of FX strategy John Hardy.

“The dollar rally needs to find some support pretty soon otherwise we are facing a potentially serious correction.”

U.S. futures also pointed to another flat start for Wall Street’s S&P 500, Dow Jones Industrial and Nasdaq ahead of U.S. manufacturing data and what should be more activity in Washington from Trump’s new administration.

Sentiment had taken a knock on Monday when U.S. Treasury Secretary nominee Steven Mnuchin told senators that he would work to combat currency manipulation but would not give a clear answer on whether he thought China was manipulating its yuan.

In written answers to a Senate Finance Committee, Mnuchin also reportedly said an excessively strong dollar could be negative in the short term.

The dollar duly skidded as far as 112.52 yen in its biggest fall since July though it was back up at 113.40 yen by 1300 GMT. It had also hopped up to $1.0745 to the euro and almost a full cent to $1.2440 per pound.

SCEPTICISM GROWS

While Trump promised huge cuts in taxes and regulations on Monday, he also formally withdrew from the Trans-Pacific Partnership (TPP) trade deal and talked of border tariffs.

“It’s interesting that markets did not respond positively to a reaffirmation of lower taxes and looser regulation, reinforcing the impression that all the good news is discounted for now,” wrote analysts at ANZ in a note.

“As week one in office gets underway, there is a growing sense of scepticism, not helped by the tone of Friday’s inaugural address and subsequent spat with the media.”

Doubts about exactly how much fiscal stimulus might be forthcoming had helped Treasuries rally. Yields on 10-year notes steadied at 2.42 percent in European trading, having enjoyed the steepest single-day drop since Jan. 5 on Monday.

Two-year yields were around 1.16 percent, narrowing the dollar’s premium over the euro to 183 basis points from a recent top of 207 basis points.

Europe’s moves included the second dip in a row for Italian yields as its highest court began deliberations on the legality of the country’s latest electoral law with the decision likely to influence the timing of elections there.

An unambiguous ruling offering a simple solution to Italy’s electoral tangle could open the way for an early ballot by June. A more nuanced, convoluted reading would almost certainly leave parliament in place until the legislature ends in early 2018.

Spain and France clocked up impressive demand of almost 50 billion euros between them in new 10- and 22-year bond sales.

The upbeat global data boosted industrial metals including copper and iron ore, while gold was near two-month high at $1,212 an ounce.

Oil prices edged up too as signs that OPEC and non-OPEC producers were on track to meet output reduction goals largely overshadowed a strong recovery in U.S. drilling.

U.S. crude futures added 45 cents to $53.19, while Brent crude climbed 42 cents to $55.65 a barrel. [O/R]

(Additional reporting by Wayne Cole in Sydney; Editing by Andrew Heavens)

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