Can emerging markets help boost UK trade?
After the referendum, there were some signs of panic, but the consumer shrugged it off. Most metrics are suggesting things are back to normal Philip Rush, Chief economist at Heteronomics
LONDON — Britain is turning to the world’s poorest countries to shore up trade as Brexit puts existing deals on an uncertain footing.
The government promises improved access to UK markets for the world’s poorest countries and to maintain existing duty-free access for “everything but arms” for 48 countries including Bangladesh, Sierra Leone and Haiti, according to an e-mailed statement from the prime minister’s office. Britain will also seek to expand relationships with nations including Jamaica, Pakistan and Ghana.
After decades of access to the European Union’s single market, the UK now has to strike out alone, following the 2016 vote to leave the bloc. In the Brexit negotiations that began June 19 in Brussels, the EU is demanding clarity on the future of its citizens living in Britain before talks on a post-EU trading relationship begin.
Trade Secretary Liam Fox has been in discussions with countries including the US and India to lay the groundwork for new deals, since the government is barred from completing talks while still part of the EU.
“Our departure from the EU is an opportunity to step up to our commitments to the rest of the world, not step away from them,” Fox said. The announcement “shows our commitment to helping developing countries grow their economies and reduce poverty through trade.”
The UK currently imports around £20 billion ($25.6 billion) a year from developing nations including Bangladesh and Sierra Leone, the government said. Almost 80 per cent of the country’s tea comes from the “least developed” nations, and slightly less than a quarter of all coffee imports.
Carney to rein in exuberance?
Meanwhile, 12 months ago, Mark Carney reassured a nation going into political paralysis following the Brexit vote that the Bank of England stood ready to flood the financial system with cash. What a difference a year makes. This week, the governor will reexamine whether it’s time to start taking back some of that bank support following rapid growth in consumer credit, a first step toward normalising policy in the UK.
As Carney prepares to deliver his biannual assessment of UK financial stability, he could force Britain’s biggest banks to raise the levels of capital they employ. Any increase would reverse actions taken in the immediate aftermath of Britons’ decision to leave the European Union, after which the BoE pumped liquidity into the banking system and announced a package of emergency measures to support growth.
“It is time for them to start removing some of the stimulus they put in on the macroprudential side,” said Philip Rush, chief economist at Heteronomics in London.
“After the referendum, there were some signs of panic, but the consumer shrugged it off. Most metrics are suggesting things are back to normal.”
The BoE’s Financial Policy Committee — set up after the 2008 crisis — met last week and is scheduled to release its report on Tuesday. The governor will give a Press conference, where questions about Brexit will probably dominate.
With consumer lending growing at an annual 10 per cent pace amid hot competition among banks to sell credit cards and personal loans, UK regulators are reviewing lending standards.
The pace of borrowing and level of debt may spur the FPC to revisit its decision to lower the so-called countercyclical capital buffer on banks’ UK exposures to zero taken after the referendum. Officials, who reassessed the level at this month’s meeting, have previously said they prefer it at one per cent in normal times and that any changes would come into effect with a 12 month lag.
That level “was the path they were on prior to the referendum vote,” said Claire Kane, an analyst at Credit Suisse in London. She, along with Rush, predicts an increase to a 0.5 per cent buffer on Tuesday and said the BoE “may work to moderate and to stem the growth in credit, particularly consumer credit.”
Questions may also be asked about the BoE’s Term Funding Scheme, a tool implemented by the Monetary Policy Committee, and whether drawdowns should be extended past the current February deadline.
Analysts at Bank of America Merrill Lynch including Alastair Ryan and Michael Helsby have warned the programme has helped cause excessive competition among banks. — Bloomberg