Finance

Lionel Laurent is a Bloomberg Gadfly columnist covering finance and markets. He previously worked at Reuters and Forbes.

The better Britain's economy and stock market hold up, the easier it becomes for the U.K. government to tune out the "gloomadon-poppers" -- Boris Johnson's catch-all riposte to anyone concerned about the country's prospects as it lurches toward an exit from the EU. And the harder it becomes for banks to find friends in high places.

This Is Your FTSE 100 On Brexit
A rebound in top U.K. shares is helping the U.K. government tune out banks' warnings
Source: Bloomberg

London's financial industry is getting the cold shoulder from Theresa May's government. Finance will get "no special favors" in negotiations, according to Bloomberg News, something that suggests there will be no interim deal to help smooth the path of Brexit for the industry. Despite accounting for 11 percent of the country's tax receipts, finance has lost the special treatment it was once used to. Now the 89 percent are on top.

You can see why banks might be having a hard time getting their message across: they were among the loudest voices promising pandemonium and job losses if the U.K. voted to leave.

Since the summer, though, it's been hard to spot any substantial economic woe triggered by the vote. So far, consumer confidence, manufacturing and services purchasing surveys and house prices have all held up. Unlike the U.S. or the Eurozone, the U.K. is the only region to register a positive score on the Bloomberg economic surprise index -- a sign analysts had underestimated the robustness of the economy. Even the pound's plunge to a 31-year low has its upside: the FTSE 100 index hit a 16-month high on Tuesday. Fodder for Brexiteers' confirmation bias is everywhere.

Fairy-Tale Economics
U.K. economic data is surprising positively, unlike the euro zone or the U.S.
Source: Bloomberg ECO surprise index

All of which has probably done the financial industry no favors as it lobbies for a Brexit that preserves as much as the status quo as possible. It's fair enough for banks to push their interests, especially with broader backing from U.K. business groups calling for finance to be taken off the naughty step. But insistent talk of relocating tens of thousands of U.K. jobs, or warnings of a mini-recession, is falling on deaf ministerial ears -- largely due to the fairy-tale run of economic data and ebbing of market volatility.

Market Calm
Volatility as measured by the VIX gauge has subsided since the U.K. referendum vote
Source: Bloomberg

Paradoxically, banks negotiating their post-Brexit future must hope that things get worse for the economy or for markets before they get better.

And there are signs that will happen. Currency traders are already pricing in more bad news to come, with the Bloomberg Pound Index at the lowest level since it was started in 2005, as my colleague Mark Cudmore notes.

Pound Pain
Sterling's woes are pricing in more bad news on Brexit to come
Source: Bloomberg

Outsourcing companies Capita and Mitie have rattled investors with warnings that clients are putting spending on hold. Chancellor of the Exchequer Philip Hammond has acknowledged businesses' "understandable" worries about what lies ahead.

Until then, though, it looks like May's government will be comfortably able to tune out those still popping their gloomadon tablets.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lionel Laurent in London at llaurent2@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net