‘Soft Brexit’ Yuletide
Well, finally, some respite for Theresa May, who suffered a torrid year in 2017, narrowly losing the General Election, dealing with the vexed Irish border question that was looming threateningly to derail the whole Brexit process and her slim majority, and the increasing acceptance that the real Brexit bill will have to be much higher.
Shrewdly, after disastrously – albeit narrowly – losing a first Parliamentary vote, Theresa May backed down on trying to enshrine a hardstop Brexit date of 29 March 2019 into UK law. So, MPs returned to their constituencies and families this Christmas knowing they will have a greater say on the Brexit process. Despite the odds, the Prime Minister clings doggedly to power and is likely now to remain in post throughout 2018. Meanwhile, Labour’s post electoral light is looking a little jaded now as it sends mixed – and clearly divided – messages on its policy on Brexit.
So, the year ended with relative peace and felicitations finally breaking out in Cabinet who gave the green light for the Prime Minister to increase our Brexit “divorce bill” offer, narrowing the gap with the EU’s €60bn estimate, and breaking earlier deadlock in talks with Brussels.
But how will Britain fare in 2018 as Brexit looms nearer?
EU Christmas message
The EU’s Christmas message to the UK is that a “transition period” after the UK leaves the EU should not continue beyond 31 December 2020, in guidelines for the next phase of Brexit negotiations, which were published on 20 December, an Annex supplementing its Recommendation for a Council Decision. Terms of the transition period, which the UK calls an “implementation phase”, have yet to be negotiated between the two sides. The next round of talks will therefore initially focus on agreeing the precise terms of this phase, before moving on to the UK and EU’s long-term future relationship.
The EU says the UK cannot adopt an “a la carte” approach and that it should continue to follow EU law and stay in the European customs union and single market during the transition phase. Rulings of the European Court of Justice will continue to apply during this period. When the UK leaves the customs union and single market it plans to end the supremacy of EU court rulings.
But, some Brexit-supporting Tory MPs have warned the UK could become a “colony” of the EU during the transition period if it continues to closely follow the same rules. Others describe it as poisonous.
New Year, Britain losing out in new world economic order
The Government says the implementation phase will avoid a “cliff edge” for businesses on Brexit day. So, what do the latest economic forecasts predict for the UK economy and British businesses leaving the EU in 2018? Unfortunately, it is gloomy reading. On 20 December, the IMF slightly revised down its UK economic growth forecast to growth of 1.6% this year, from its previous forecast of 1.7% and announced that it expects growth to slow further next year, to 1.5%.
But the real concern is the relative deterioration of UK’s growth, against global benchmarks. IMF chief Christine Lagarde indicated that, despite the progress the UK government has made cutting the UK deficit, “the UK is losing out” in terms of relative growth, and blames Brexit uncertainty causing UK firms to delay investment plans, plus also rising inflation, caused by the fall in the pound, and stagnant wages combining to squeeze spending power. She added, “If you look at investment alone, with 2.1% of GDP in investment, with the global economy as it is, and the space the UK economy has in that global economy, it should be rolling at 6%.”
City prognosis in 2018
While Britain is clearly slipping back and not enjoying the economic growth enjoyed by its European neighbours and in international markets, in 2018, we’ll be keeping a very close eye on how the City fares and whether it can retain its pre-eminent position in financial services. Expect much escalated lobbying activity from City grandees (such as the City of London Corporation, TheCityUK, trade associations and business representative organisations), providing support with the granular detail and detailed analysis and hopefully visibility – needed by the UK government in 2018, weaving its way through a tricky regulatory and legal quagmire!
Meanwhile, there will be much to preoccupy and occupy the City on the regulatory front both from Europe and the UK. Kicking off in January with the implementation of the Benchmarks and PRIIPs Regulation and Markets in Financial Instruments (MIFID 11) and Payments (PSD2) Services Directives, followed on 25 May with the General Data Protection Regulation (GDPR).
Back on home turf, the FCA is bringing into effect its credit card remedy proposals and in July the CMA will make a provisional decision on its investigation into the investment consultant and fiduciary manager market. There’ll be much to ponder.
Melanie Worthy, Head of Public Affairs, MRM
Photo credit: Toby Bradbury