Britain’s Brexit Economic Blueprint 

Brexit transition and trade access

The transition timetable for Brexit now looks set to end on 31 December 2020, according to Michael Barnier, EU chief negotiator. This would appear to be a “logical” point for the UK’s departure because it is the last day of the current EU budget.

The tone from our European partners remains a conciliatory, perplexed and critical mix. Clearly, President of the European Council, Donald Tusk, seemed to offer an olive branch when he declared that “our hearts are still open” to Britain staying in the Common Market. French President Emmanuel Macron, visiting Britain recently, candidly admitted that if France had put a referendum vote to its people – which of course they were astute enough to avoid – they too might have suffered the ignominy of a ‘no’ vote. He believes Britain had backed Brexit because “a lot of losers” of globalisation had decided it wasn’t for them.

Macron did suggest that the UK could get a special trade deal with the EU but not continue to get the full benefits from the single market, “cherry picking… would dismantle the single market”, a message reinforced by Jean-Claude Juncker, President of the European Commission, that the UK cannot have a “single market a la carte”.

The issue of passporting of financial services remains a vexed issue. The French and other of our Continental neighbours may not like it, but Britain is the European-domicile country of choice for many parent non-EU domiciled financial institutions accessing European markets. So, it’s in Europe’s wider interests that this pertains in the new order.

Where is our own government on all of this? The long-promised Finance white paper is not now even expected to materialise. The City is losing patience with heavyweights like City of London on the lack of action on financial services, while Corporation and TheCityUK are stepping up concerted direct bilateral dialogue with many EU member states.

Meanwhile, The International Regulatory Strategy Group (IRSG) has also published proposals for a regulatory divergence model to foster a satisfactory trade deal in financial services – The Architecture for Regulating Finance After Brexit – which makes for interesting reading.

UK economic fortunes

Well, the endless Brexit transition story and trade negotiations and growing leadership challenge to Theresa May’s premiership are yet again headline news. Domestically though, the fallout from construction giant Carillion’s collapse trickles on with the spotlight on public oversight and management failings, prompting continued questions about the pensions scheme (now the subject of further Parliamentary scrutiny). Carillion’s collapse now challenges cross-party consensus on public private partnerships pertaining since Blair’s Labour administration made its own push here.  Labour hasn’t been slow to make political capital out of it and it has, of course, lent some credibility to mooted plans for renationalisation of vital public services.

On macroeconomic horizons, watch for revised ONS fourth quarter 2017 growth estimates out on 22 February. Following last month’s news that house prices fell by 0.6% (on November’s figures), all eyes will be on the next set of reports, starting with the Halifax House Price Index on 7 February, plus the Hometrack UK Cities Price Index on 23 February. Investors also remain worried about high inflation, now hovering around 3% (ONS monthly inflation figures out on 13 February).

Despite these concerns, the European Commission reported earlier this month that the UK’s overall economic sentiment index rose to 112.4 points in December, up from 108.8 the previous month, with the ‘strength of sentiment in British industry’ at its strongest since hitting a record high in June. Exporters are enjoying an improving global trade environment, while the fall in the value of sterling since the EU referendum has made British products more attractive. It’s really important though that Britain secures good post-Brexit trade deals, particularly with the revelation from the BuzzFeed News leak on government thinking and forecasts that national growth could be up to 8% lower if Britain left the EU without a comprehensive trade deal or sufficient market access.

FinTech cheer or bubble?

We’ve seen interesting developments in the London FinTech space recently, with the cryptocurrency and ICO boom continuing. London-listed telecoms company Stapleton Capital reoriented its business to focus on blockchain – its name change to Blockchain Worldwide caused its shares to double in price! Meanwhile, FinTech will be the first sector to produce an initial public offering this year, as Shoreditch-based IntegraFin, which provides services to over 5,000 independent financial advisers and is valued at £500m, announced plans to float on the London Stock Exchange. Impressive!