Brexit isn’t as clear cut as it might appear
High street and high finance tell two different stories about the EU divorce
If British Prime Minister Theresa May thought a new year might bring some new luck, so far, she has been sorely disappointed.
A traumatic 2018 ended with her postponing a parliamentary vote on her Brexit proposals, and facing a leadership challenge. The new year has been no more friendly.
If, as widely expected, the prime minister suffers a heavy defeat in Tuesday’s postponed vote, it will be a third major blow to her authority this month.
Twice, members of her own government have voted against her, condemning her to defeat. Once in support of a motion restricting any future taxation measures to fund a no-deal Brexit, and secondly to limit the time the government will have to provide an alternative solution if, as expected, her plan is thrown out.
The economic outlook is hardly any better. High streets had their worst Christmas for a decade, with such popular favorites as Sainsbury’s, Marks and Spencer and John Lewis all feeling the pinch. Only the Tesco supermarket chain seems to have escaped the seasonal economic chill, reporting “strong” sales.
The UK Society of Motor Manufacturers and Traders reports that registrations of new cars in 2018 fell by 6.8 percent, a second consecutive annual fall, and the message from Britain’s housing market is far from clear.
Major mortgage lender Halifax says prices in December 2018 defied predictions to rise faster than at any time in almost two years, but on an annual basis, the rise for the three months up until December meant it was the weakest year since 2012.
Another report from Nationwide gave contradictory messages, highlighting the slowest annual increase in prices since February 2013, a sign that the Brexit-inspired climate of uncertainty is putting consumers off making major investments.
The pound continues to struggle. On April 16, 2018 it was worth 1.16 ($1.49) against the euro, down to 1.12 on Jan 9. Having been worth 1.43 against the US dollar on that same date in April, by the same date in January, sterling was down to 1.28. And all of this before the country knows what Brexit will even look like.
French-based aerospace company Airbus has been in a Brexit “holding pattern” before committing itself to its future in the United Kingdom.
Japanese electronics company Panasonic and banks Nomura and Daiwa have moved their European headquarters from the UK, which currently absorbs 40 percent of Japanese investment in the EU, and a report published by Ernst and Young revealed that financial institutions have shifted 800 billion pounds ($1.03 trillion) of assets out of the country as contingency planning for a no-deal Brexit.
According to the City of London Corporation, Britain’s financial sector employs 2.2 million people, and contributes 12.5 percent of the country’s GDP, generating 72 billion pounds in tax revenue — so to the outsider, evacuation in high finance coming on top of a slump on the high street might look like another example of the Brexit contagion May is struggling to contain.
But according to Christian May, editor of London daily business newspaper City AM, things are not quite that black and white.
“Much of the financial services sector conversation has been about jobs,” he told China Daily, “but what’s more important — and hasn’t had as much coverage — is the conversation about capital and assets.
“So far only a few thousand jobs have moved, which, compared to what was predicted is pretty modest. In fact, probably the biggest impact of Brexit on the labor market so far has been the creation of new jobs in Europe so institutions can continue to serve their clients,” May said.
Other locations in EU
And while significant assets — 800 billion pounds, or around 8 percent of Britain’s financial services sector — have indeed moved to other locations in the European Union, this is not necessarily down to Brexit fears. It is pure practicality.
“These moves aren’t done because of concern about Brexit, it’s because there are rules and regulations about serving EU clients from within EU financial centers. To carry on doing this, some institutions have moved assets. That’s not to say 8 percent isn’t significant, but it’s planned. In fact, Britain’s financial services sector is one of the most advanced sectors when it comes to no-deal planning,” May added.
By its nature, finance is about ups and downs, and adapting to changing fortunes. May said the city will take whatever happens in stride.
“There will be a recalibration — institutions are nimble and proactive and will take decisions in advance to mitigate the effect, that’s the nature of financial services,” he said.
“Everyone I speak to is being pragmatic; if part of London’s success in the last 30 years has been based on its relationship with the EU, what will the next 30 years be like? To me, those are the interesting conversations.”
May even said that the way the city has already dealt with pre-Brexit points at how the economy will handle whatever lies ahead.
“London has some great advantages, which will remain true after Brexit but what will change is the regulatory and legal relationship,” he said. “In fact, the number of people in the financial services sector is now greater than before the referendum. That shows that whilst London benefits from the single market, it’s not contingent on it.”