Brexit isn’t as clear cut as it might ap­pear

High street and high fi­nance tell two dif­fer­ent sto­ries about the EU divorce

China Daily - - WORLD - By JU­LIAN SHEA in Lon­don ju­[email protected]­nadai­

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.”

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