What kind of Brexit will we get?

The summer heat is cooling, and the Brexit clock is ticking. Hopefully Prime Minister Theresa May is refreshed from her holiday when Parliament returns on 4 September. It will be a very tough and crucial couple of months ahead in securing the Brexit deal. Despite politicians courting EU member states over the summer, it still feels like the calm before the storm, with the intensified flurry of ministerial and diplomatic activity to come.

Setting the tone, Liam Fox, international trade secretary, asks “are we going to get a ‘People’s Brexit’ or a ‘Bureaucrats Brexit’”? He’s still putting on a brave face and talking about the deals that can still be done outside the EU, hoping for a “bilateral” Japan-type trade deal that will also apply to financial services. This is important as 43% of international and wholesale financial services revenue comes from the EU, though only 23% from all financial services activity.

The Government has been steadily preparing its Project ‘No Fear’, which also covers proposals for the eventuality of a no-deal Brexit, although foreign on 23 August published 25 contingency plans the first batch of about 80 technical papers covering the arrangements needed to be put in place for a no-deal, and kicked off with an important speech by Brexit Secretary Dominic Raab , which also followed the resumption of his EU exit talks with Michel Barnier, the EU’s chief negotiator, in Brussels two days prior.

The technical papers adopt a “flexible” approach to ensure EU medicines, car parts and chemicals are still available in the UK. Concern remains about the prospect of the M20 turning into a giant lorry park in the event a deal isn’t reached. Campaign group Lawyers for Britain, however, is dismissing some of this hysteria and says claims that fears of higher food prices and medicine shortages are “ridiculous and unjustified”.

Dominic Raab said: “People and businesses should not be alarmed by no-deal planning and preparation, nor read into it any pessimism.” In the event of a no-deal scenario, this is an important move to try and ensure the economy does not falter and that market access remains open for importers of vital goods such as medicines. “Disruption” and “flexibility” seem to be the UK’s current negotiating stance and tone. But are we giving up some negotiating strength by seeming to accept EU goods without ensuring British goods will be accepted on the continent?

Dissent in the Government is still evident, however, with Chancellor Phillip Hammond seemingly undermining the ministerial line by warning that a no-deal will have “large fiscal consequences”. Project Fear is still highly evident. Watch to see what impact the publication of these papers will make on the eventual direction of travel and Britain’s negotiating outcome.

Leadership challenge?

Meanwhile, the Brexiteers, led by MP Jacob Rees-Mogg, are re-aligning and drawing up alternative plans, highlighting the benefits of a no-deal Brexit over Theresa May’s Chequers proposals through the Tory-backed European Research Group (ERG). Mogg has warned that the prime minister will find it “extraordinarily difficult” to get her plans approved if she does not come forward with major revisions before the end of the year.

Moves are afoot to make a leadership challenge easier too, as Tory grassroot activists apply pressure on the party’s ruling board to change the leadership election rules. The proposal is to allow candidates receiving the support of just 20 parliamentary colleagues. Johnson is reportedly mulling over whether to launch a leadership bid. But when? Will all this threaten and potentially topple the government?

Amid the uncertainty and a looming no-deal scenario, support for a new referendum on Brexit is growing, with The Independent attracting 670,000 signatures to a petition for a second vote. Interestingly, Superdry entrepreneur Julian Dunkerton has also dipped his hands in his pocket to fund a £1m Brexit referendum drive.

Subdued economy

The uncertainty around Brexit and the August interest rate rise from 0.25 % to 0.75% is doing nothing to lift UK economic indicators. Watch this month for UK monthly GDP growth estimates from the Office for National Statistics (ONS), published on 10 September (the UK economy grew by just 0.1% in June) plus HM Treasury monthly forecasts for the UK economy and ONS monthly inflation statistics, both published on 19 September, (CPI was 2.5% in July). Look for signs of consumer confidence with the latest consumer spending data from Barclaycard out 4 September and Visa on 10 September.

Housing

It’s a mixed bag on housing trends this month.

The recent interest rate rise leaves first-time buyers facing an extra mortgage bill of £1,000 a year according to UK Finance. First-time buyers borrowed a record amount in June, so it will be interesting to see if demand is tempered. StepChange, the debt charity, says just a £23 rise in monthly payments is enough to tip one in 10 of their mortgage holder clients into a negative monthly budget.

First-time buyers are however being urged to make the most of a three-year house price low for London house prices properties, where average house price have dropped by 5 per cent since April 2016, according to Rightmove.

The ONS reveals the £200m of Government funding to back developments on brownfield sites has had the opposite effect with the proportion of new homes registered on brownfield sites falling by 4% since it was established in 2014.

So, wait for housing stats this month: Halifax – 7, UK Finance – 12 (plus 26RICS – 13, Rightmove 17, Markit – 17, ONS – 19, Hometrack – 25, Government (Ministry of Housing Communities and Local Government) – 27, and Nationwide – 28.

Public and Regulatory policy developments

Government will cover these proposals in a forthcoming green paper looking at unlocking pension fund access. A Care ISA would plug the funding gap. The Government needs to find a solution to meet the £5.5bn funding gap in social care in 2020-2021, which is set to rise further to £12bn by 2030. ONS statistics show the UK will have 9 million more pensioners within the next 50 years and the number of people aged over 65 will nearly double to more than 20 million by 2066.

The Financial Ombudsman Service (FOS) revealed consumers lost £240m to sophisticated financial scams last year and yet banks have paid back just a quarter of these losses to consumers. The FOS is appraising the situation and has powers to make banks increase compensation for consumers.

The Financial Conduct Authority’s (FCA) deadline for responses strategic review of retail banking model closes on 7 September. Meanwhile, according to accountants Moore Stephens, London’s Alternative Investment Market (AIM) is showing signs of life with tech firms raising more than £500m on the index in the first half of 2018.

The FCA deadline for feedback on its Investment Platforms Market Study is on 21 September. Here it observed that platforms are a relatively new and significantly growing distribution channel, doubling from £250bn in 2014 to £500bn in 2017. With a competition focus it has found that switching between platforms and shopping around can be difficult for retail investors and consumers who also do not understand the risks and expected returns of model portfolios and are holding too high cash portfolios.

28 August 2018