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ECONOMY

U.K. begins formal process to leave the European Union

U.K. Prime Minister Theresa May triggered the beginning of a minimum two-year process to exit the European Union, with markets and the sterling reacting moderately to the news Wednesday.

Executives at money management firms said the invocation of Article 50 itself — which officially notified the EU of the U.K.'s intention to leave the union — will affect markets to a lesser extent but agreed it would impact sterling. The currency fell 0.03% against the euro and 0.14% against the dollar early on. However, it had recovered by the end of the day was finished up 0.22% against the euro and down 0.05% against the dollar. FTSE 100 closed Wednesday up 0.41%.

“Investors should be braced for some sterling volatility, but it will remain range bound over the next few months. Article 50 has been largely priced into the pound as reflected in extreme shorting positioning, and I believe that any negative impact from negotiation noise will be offset by the Bank of England's hawkishness as inflation rises further,” said Salman Ahmed, chief investment strategist at Lombard Odier Investment Managers.

The U.K. on Wednesday started the process of leaving the EU as Sir Tim Barrow, the British representative to the European Union, delivered a letter triggering Article 50 to Donald Tusk, president of the European Union Council.

Ms. May said in a statement to the members of the Parliament in London: “We are at the start of the process. We are going to make our own decisions and laws in London (and other U.K. capital cities) … and they will be dealt with by British judges, not those in Luxembourg.”

She added: “We are seeking a new deep special partnership with the EU, a deal that works for usall. We are not leaving Europe, we seek to cooperate with our European partners and neighbors in areas of security and economic affairs, but we accept the consequences of leaving the EU. We intend for as little disruption as possible. It is in U.K.'s interest.”

At a news conference in Brussels following the meeting with Mr. Barrow, Mr. Tusk said: “Our goal is to minimize the cost of this process for EU citizens, member states and businesses.”

Mr. Tusk confirmed that Brexit negotiation guidelines will be shared with the EU member states on Friday, and will be adopted during a council summit meeting April 29.

“European Union law will continue to apply in the U.K. until (the process of) leaving the EU is concluded,” Mr. Tusk said.

Regarding the effect on money management firms, Mark Pugh, U.K. asset and wealth management leader at PricewaterhouseCoopers, said: “The time for indecision is over — firms must now firm up their plans for various Brexit scenarios. It's important that businesses continue to press ahead with preparations to comply with any EU legislation due to be implemented in the next two years, such as MiFID II.”