Brexit retains top billing as summer recess continues
Even though Parliament is currently well into its summer recess, there is no sign of Conservative in-fighting or leadership ambitions abating. Weakened premier Theresa May’s pleas for an effective ceasefire over the summer and, for Cabinet members to show restraint in public and keep their bickering private seems, so far, to have fallen on deaf ears.
Let’s hope MPs are rested and ready when they return for the serious autumn session of Government and continuing sobering Brexit negotiations.
But what else does the summer have in store?
Hard Brexit landing
Top billing remains Brexit. Brexit talks were continuing last month, albeit taking a worrying tone, with Liam Fox, the Secretary of State for International Trade, later reporting that we might now need a three-year transitional arrangement for trade. Serious trade negotiations are definitely something to be picked up after the brief summer negotiation respite.
However, wider business fears continue, with the London Chamber of Commerce being the latest to publish a survey revealing many UK businesses, heavily reliant on staff from Europe, are worried about recruiting and retaining staff over the next year. Fifty two per cent of them are pessimistic about the impact of certain aspects of Brexit on their growth prospects. Meanwhile, London mayor Sadiq Khan added his voice to an increasingly – fanciful? – echo chamber wondering if Britain could actually remain in the European Union if it fails to get a good deal out of the Brexit talks. Even in the ‘leave’ lobby, regrets are being voiced with Dominic Cummings, former Campaign Director for Vote Leave, saying the vote may have been an “error”.
So, where are we with Brexit? Well the expected shenanigans kicked off early into the recess. First at home, with Boris Johnson and Michael Gove accused of machinating Theresa May into bringing about a hard Brexit with no transitional arrangements. Boris Johnson’s remark that the EU could “go whistle for the money” was singularly unhelpful. In the opposite camp are Chancellor Philip Hammond – who has had a torrid time of late – and Home Secretary Amber Rudd. Meanwhile, Brexit Secretary David Davies angered EU officials who are losing patience and demanding that Britain engages on the detail. One kind of inclines to the EU view, which is that Britain isn’t ready for these talks. There appears to be no softening of the line on either side and Britain seems to be heading well and truly for a bumpy Brexit landing. It doesn’t augur well for their resumption on 28 August. What a mess!
Meanwhile the costs of Brexit continue to mount and the Office for Budget Responsibility has warned of the uncertain risks from Brexit in its Fiscal risk report surveying a range of risks from the economy and financial system to tax revenues, public spending and the balance sheet. So what is happening in the economy at large?
Subdued consumer spending
Inflation has fallen, bringing some collateral damage to the value of sterling with a slide in the Consumer Price Index to 2.6%, following the cost of living hitting a four-year high in May of 2.9%, but consumer spending remains subdued post the election.
However, it’s not all bad news. Economic growth is bumping along at 1.5% and 1.4% predicted for next year. Think tank Reform says that four million people could be helped out of unemployment if they could access the “gig” economy. Matthew Taylor, author of a recently commissioned gig economy report, has not looked to restrain this sector (although he has recommended giving workers a right to request set hours). Indeed, he recognises the UK’s flexible labour market as one of the economy’s biggest strengths and is looking to avoid a blanket ban on zero hours which would create more “cliff edges” for both employers and workers.
House prices are predicted to rise steadily to 2025 though prices are more muted now in London. PwC forecasts average house prices will top £300,000 by the middle of next decade. This seems counter to earlier reports that suggested the housing market was cooling.
Other indicators are holding up too. It will be interesting to see what the flurry of housing, lending and wider economic indicators published throughout August reveals for the forward trajectory.
“A less Libor-centric world”
August 4th marked the first anniversary of the further lowering of interest rates. The Bank of England has set out a vision for a “less Libor-centric world” where interest rates used to price financial contracts would be based on market transactions rather than the judgement of banks. This brings us neatly on to the Libor scandal review on which banks have paid out billions of pounds in recent years for attempting to rig the market. The FCA consultation on interbank rates closes on 7 August.
Other regulatory new focuses include an FCA investigation and Retail Investment Platforms market study into the rapidly expanding half a trillion-pound fund retail supermarket sector to determine if “firms are offering value for money.”
The Bank of England is extending access to settlement accounts in its real-time gross settlement (RTGS) system to non-bank payment service providers, enabling direct access to the UK’s sterling payment systems. In doing so, the Bank of England aims to promote innovation and competition in the payments sector and is consistent with new Payment Services Directive regulations.
How’s the City bearing up? Well, City UK and PwC recently published a report showing that financial services firms (98 were surveyed) have huge post-Brexit opportunities to boost export competitiveness, innovation and efficiency and are enjoying boosted profits and rising employment despite low business confidence. The industry wants a clear Brexit blueprint it can work to. Some firms have moved operations out of London with Dublin and Frankfurt both benefiting. However, the survey predicts that if recommendations regarding more tripartite strategic partnerships between government, regulators and the industry were exploited, financial services could contribute £43bn to the economy by 2025 and presumably maintain London’s preeminent position.
Melanie Worthy, Head of Public Affairs, MRM