Britain’s Brexit dividend

SAY it quietly but if Prime Minister Theresa May does pull off a Brexit deal, as looks increasingly likely, there will be a dividend. And it is not the one on the side of the Boris bus.

A post-referendum surprise has been that the British economy has done as well as it has. There has been no recession but growth has been subdued (well below trend rates possible) and the unemployment rate has tumbled to 4pc of the workforce.

Surveys show that although companies have continued to invest, some big decisions have been postponed pending the outcome of EU talks.

Some smaller firms have resisted taking advantage of the cheaper pound to supply Europe because of concerns that the costs could be too high.

As a result, a British economy which started the year in a low- octane way – because of bad weather and the shadow of Brexit – could end the year on a higher note. It will also provide the Chancellor with extra firepower in his Budget this month.

one shouldn’t underestimate the obstacles that still stand in the way to Brexit. Among the most formidable are the £41trillion of open derivatives contracts which have to be rewritten before March 29, 2019.

In effect, because these have to be revalidated three months ahead of deadline, ideally the issue must be sorted by the end of the year. Moving the contracts from the London Clearing House, ICE and other City-based platforms would be a costly exercise (a figure of £20bn has been mentioned), which would raise costs of hedging and hurt consumers and enterprises.

It is by no means clear that the big American investment banks, the largest players in this market, want the contracts to move to European clearing or that the countries concerned want the risk.

But in the context of Brussels brinkmanship, it is a useful lever. one thing is certain – if no deal on the open contracts is reached the chaos and market shock in the City and on the Continent will range from pretty bad, to very bad.

Passing the hat

AT £43.3bn the International Monetary Fund’s rescue package for Argentina is the biggest in its history. Next in line is Pakistan looking for a more modest £6.1bn but the betting is there will be more to follow.

Cash has been exiting many nations such as Turkey at record rates, and the Fund calculates that in 40pc of countries debt is now too high to be serviced by exports.

A rising concern is that the Fund lacks a big enough bazooka should there be a torrent of loan requests. IMF reserves are just a small fraction of what may be required. The Fund still has sums tied up in Europe after the 2010 crisis.

More worrying is that the £380m or so of new borrowing arrangements put in place after the financial crisis – so the IMF is ready for anything – is starting to run out.

Similarly, the IMF is only in the foothills of organising a renewal of its capital – known as quotas.

The question hanging over all of this is Donald Trump, America first and the president’s dislike of multilateralism. As the biggest shareholder in the IMF it requires, at the very least, tacit American support to mobilise other countries.

remarkably the only global institution to so far win the support of the White House over the last year is the World Bank.

This was largely due to the help of first daughter Ivanka Trump and her support for its women’s entrepreneurship initiative. This opened the door of the White House to World Bank president Jim Yong Kim who soon found himself in the oval office chatting with the president. Kim gained favoured status and, with the promise of some reforms, the US fell in behind a £9.9bn capital increase for the Bank.

Pays to have friends in high places.

Last frontier

THEY used to be third world countries, then they became less developed countries, then developing nations and, finally, emerging markets.

At this year’s meetings in Bali we saw the beginning of something fresh – the Frontier nations.

These countries are smaller than China and India but also on the up, and include nations such as Albania, Bangladesh, Botswana, Cyprus, Estonia, Lithuania, romania and Sri Lanka.

Davy Crockett would be proud.