It’s been an extraordinary period in British politics, even by Brexit’s standards, following the now fatally damaged Chequers deal. A series of high-profile resignations, including Brexit Secretary David Davis and Foreign Secretary Boris Johnson, have wounded the Government at a crucial time during negotiations.
The Prime Minister had done so well to broker at Chequers, only to be forced to concede four amendments in Parliament last week to get the bill through the Commons. The fact is Brexiteers outnumber the government’s slim and fragile majority. Therein lies the problem: some Brexit backers are prepared to have a so-called “no-deal”, despite repeated warnings that it could have a disastrous effect on the British economy.
The country is deeply split and Parliament seems to be increasingly divided by different Brexit camps, rather than party politics. Are we heading towards a leadership challenge, a second referendum or even a general election?
Apparently, an extension to next year’s Article 50 deadline is actively being discussed in the back rooms of Brussels as MEPs and officials try to avoid a cliff-edge Brexit in the event of a no deal. The Chequers deal is clearly incompatible with Brussel’s own red lines. Michel Barnier, the EU’s chief Brexit negotiator, said May’s proposals “would prevent the EU from withdrawing access unilaterally”, amounting to a “system of generalised equivalence that would in reality be jointly run the EU and UK”. Even Dominic Raab, the new Brexit minister, admitted in a supplementary white paper that Britain will need to stockpile food (plus medicines) in the event of a no deal. Let’s not get started on the doomsday predictions about lorries clogging up British motorways should negotiations go awry.
Anyway, Theresa May has now issued a written statement advising she’s in charge of the Brexit negotiations on Brexit.
Meanwhile, the Electoral Commission declared the Leave campaigners acted illegally in the run up to the referendum, while the behaviour of the Tories’ chief whip on the recent customs vote shows how murky the negotiations have become. On the left, Labour is battling accusations of anti-Semitism within its party and has taken yet another swipe at the City, which it holds responsible for the demise of British manufacturing.
The government tried to secure an earlier summer recess – no doubt desperate for some breathing space – but limped on until 24 July. Theresa May will send key cabinet ministers to the four corners of Europe to drum up support for her Brexit stance during the break. Good luck to them. The 29 March deadline looms ever closer and there are just two months to negotiate a deal with the EU once MPs return to parliament on 4 September.
Hot-headed trade talks
What are the prospects for signing new trade deals with countries outside the EU after Brexit? Well, the G20 met recently against a backdrop of heightened trade tensions, the risks of which were highlighted by the British delegation.
The Prime Minister received precious little support from President Trump on his recent visit to Britain. In an interview, he candidly said “the British people aren’t getting what they voted for” before sidling off to cosy up to President Putin. It seems that Trump’s “America First” mantra is increasingly at odds with Britain’s hopes for an expansive trade deal post-Brexit. The fact is we stand to lose 50 trade deals that we currently benefit from under the EU when Britain leaves the EU, including a new deal recently brokered with Japan.
Economy limping along…
Meanwhile, the economy limps on, with the EU Item Club predicting GDP growth of just 1.4% this year. Inflation has jumped to 2.6% ahead of August’s crucial interest rate decision. The Bank of England has a big call to make amid record employment, rising wage pressure and high petrol prices.
On a more positive note, London’s housing market is showing signs that it is turning a corner. Prices rose 1.8% in the three months to June as sellers became more realistic in their asking prices, therefore allowing more deals to get over the line. However, the Royal Institution of Chartered Surveyors paints a somewhat more subdued picture, with predictions that house prices will struggle. Look out for housing statistics this month (Halifax 7th, 14th, UK Finance 12th, Rightmove 20th, Hometrack 28th, Nationwide 28th).
Regulatory bickering and late summer flurry of activity
Even regulators have been bickering about Brexit, with the Bank of England warning that the UK’s withdrawal puts financial contracts at risk being dismissed by EU financial services commissioner Valdis Dombroviskis.
The UK Competition and Markets Authority announced an overhaul of the pension investment consulting sector, warning that customers were not getting the best value from services. It recommended forcing pension trustees to select an investment manager and increased transparency regarding fees and performance.
The FCA consultation on funding for Financial Services Compensation Scheme (FSCS) closes on 1st August.
City/Tech remains a vibrant hope
Fintech is vibrant, but regulators are sharpening their tools. The Financial Stability Board (FSB), which coordinates financial regulation for the G20 Economies, has published a framework for “vigilantly” monitoring risks from crypto assets like bitcoin, designed to spot and stave off any financial stability risks early. Charles Randell, the Financial Conduct Authority’s new chairman, warned the rise in big data, artificial intelligence and machine learning, along with behavioural science insights, could require a less permissive regulatory framework in time.
Investment in Square Mile office space hit a record high, fuelled by soaring demand from Asian firms. This comes despite is soaring, with interest increasing from Asia, a slowdown in other parts of property sector, according to global real-estate adviser CBRE.
PPFO, the London-based cross border e-payment company, announced a $50m investment round to finance further international platform expansion of the alternative payments market. Facebook has announced a big expansion in London, acquiring 600k sq. ft of new office space in Kings Cross, an area fast becoming increasingly popular with tech firms, with neighbours YouTube and Google nearby.
It is also positive to see that the Brexit vote does not seem to have had a negative effect on net migration. The City and the fintech sectors, in particular, are reliant on EU nationals for staffing. Migration Statistics Quarterly Report for July 2018 from the Office for National Statistics on long-term international migration trends show EU net migration continues to add to the UK population.
In 2017, net migration (the difference between those coming into the UK and those leaving the UK) is positive, meaning that international migration is adding to the UK population – with an estimated 282,000 more people arriving in the UK than leaving with non-EU net migration (+227,000) was twice the level of inward EU net migration (+101,000). The number of EU citizens coming to the UK in 2017 was 240,000. This was lower than levels seen in 2015 and 2016 but is at a similar level to mid-2014. The number of EU citizens leaving the UK was 139,000, similar to the year ending September 2017 estimate (137,000) and year ending December 2008 (134,000). As a result, EU net migration is at a similar level to year ending June 2013.
It will be interesting to see what impact Theresa May’s commitment to end the free movement of labour will have on long-term trends.
Continuing skills shortages and immigration remain key concerns, with think tank Global Future claiming that government immigration targets to reduce net migration to under 100,000 people a year could end up costing the UK economy £12 billion annually for the next five years.