Autumn chill for Brexit Britain
The holiday season is well and truly coming to an end with no joy for either late holiday makers – who suffered as sterling fell to an eight-year low against the euro on 24 August – or for MPs returning to Parliament on 5 September.
Although Theresa May has recently returned from her holiday to find a cabinet seemingly now united on Brexit, or at least committed to effecting it, she still isn’t out of the woods. The rumour mill is alive to a possible move against her at the upcoming Tory annual conference which starts on 1 October.
The Department for Exiting the EU (DExEU) has published a series of position papers on Brexit, aiming to shape the next round of talks. The key one here is the Enforcement and dispute resolution: a future partnership paper published on 23 August. Under these proposals and scenarios, the British Supreme Court will have highest power and be ultimate arbiter, and there may be a role for the European Free Trade Association (EFTA).
Theresa May forthrightly insists that Brexit Britain will be leaving the jurisdiction of the European Court of Justice (ECJ). But the detail in the paper appears to indicate something more nuanced and that we will still be in ‘indirect’ jurisdiction. On Brexit transition, it is less unequivocal; the ECJ will retain jurisdiction and will be bound by its rulings, joint committees and arbitrations.
Interestingly – though obviously irritatingly – EU citizens domiciled in the UK will only be subject to UK laws.
This certainly generated some heat and scrutiny. Justice Minister Dominic Raab asserted that Britain would gain “control over our laws” but admitted that we would “keep half an eye on each other”, pointing out that all legislatures take cognisance of the Supreme Court rulings of other countries. He emphasised that, per se, “ECJ jurisprudence shouldn’t be seen as a red line.”
Other position papers cover data protection and trade, with Britain now hoping to start talks on a trade deal in October. Yet again, the UK seems at variance with European thinking, with one EU official saying “the solution proposed by London on customs and the Irish border sounds like a fairy tale.” There is clearly no meeting of minds, with the EU’s position remaining ever entrenched. Indeed, this week President Jean-Claude Juncker has declared that none of Britain’s position papers are satisfactory and is adamant that there will be no trade negotiations between the EU and the UK until three major sticking points are resolved: the rights of EU citizens living and working in the UK post-Brexit and the rights of UK citizens in the EU; the decision on the Irish border and the size of the financial settlement between the EU and UK.
The political reality then is that the Government cannot deliver the Brexit that was voted for, or perhaps naively or fancifully envisaged.
Sterling, growth and trade
Watch this month’s crop of statistical indicators even more closely as we teeter on the edge of possible recession, with sterling recently sliding to its lowest level against the Euro since 2009. A series of stats, including GDP growth, producer mortgages, housing, inflation and updates from both UK Finance and the Bank of England by mid-September will reveal if these worrying trends are set to continue.
The pound has lost almost a fifth of its value against the euro since the Brexit referendum, currently hovering just above parity with the single currency.
The City, it seems, has now discounted any rise in UK interest rates until early 2019 as evidenced by the continued decline of sterling. The fall of late also reflects the harsh reality of stronger eurozone economic growth and reduced political flux after the election of Emmanuel Macron in France, and ahead of the seemingly certain re-election next month of Angela Merkel as German Chancellor.
The double whammy of Brexit realities and uncertainties are now kicking in viciously. ONS growth figures for Q2 published on 24 August suggested we are heading for a recession in 2018, with GDP growth in the UK falling to just 0.3%. Consumption grew at just 0.1%, reflecting poor confidence in Brexit Britain, and as a direct consequence of higher prices and lower wages. UK business investment was also flat, coming in at virtually the same level as the three months prior to the EU referendum last year.
Certainly, we’re not keeping pace with world recovery and the UK has now been officially confirmed as the worst performing economy in the G7, with our GDP per capita at a low level. The Government’s target of reducing net annual immigration into Britain to below 100,000 won’t help either, with figures published on 24 August indicating the first fall in net immigration. This is likely to cut both population and GDP growth.
If we stick to the Brexit trade proposals outlined in Theresa May’s Lancaster House speech back in January, we’ll be presiding over the most protectionist Britain since the war. This will depress trade flows further, and the UK should also expect a fall in inward foreign investment too, with further knock-on effects on growth as foreign-owned firms are more productive than domestically owned firms, and invest more in R&D too.
Watch, quietly in the wings, further attrition and loss of UK financial market infrastructure as France and Germany angle for the transfer of euro clearing.
More positively, Theresa May is in Japan on a visit to discuss trade and security issues. She is accompanied by International Trade Secretary Liam Fox and a delegation of business leaders drawn from a range of sectors. Expect more trips like this as Britain paves the way for bilateral post-Brexit deals with all our trading partners. These discussions are being watched closely given our material economic ties. Japanese officials have indicated that they want negotiations to be as predictable and transparent as possible to provide certainty for Japanese firms – who employ some 140,000 employees in the UK – and regard the UK as a bridge to Europe. Nomura bank, Hitachi and carmakers Honda, Nissan and Toyota all have bases in the UK.
Theresa May is keen to reassure that there will be “no cliff edge” when Britain leaves the EU in March 2019. However, the UK will only be able to sign any bilateral deals at the point of EU departure.
Anyway, do remember to bag up your old pound coins and spend – while they still have value – or exchange them by 15 October while they are legal tender!
30 August 2017