Bad news about Brexit is everywhere -- except in financial markets, where Donald Trump is being hailed as the man who can ease the U.K's painful divorce from Europe. In the trigger-happy world of traders, a smug Nigel Farage is a sign of sweet trade deals to come, rather than yet another crack in Britain's once robust system of parliamentary government.
The pound has had its best month since 2009. The FTSE 100 is slightly lower, as a stronger sterling means all those foreign earnings won't be worth quite so much, but it's still set for its best year since 2013.
It's a reaction that says as much about the confused state of markets as anything else. But if, as my colleague Matt Levine wrote, elite investors are looking at a man who campaigned to ban Muslims and deport immigrants and seeing a "pro-business" investment story, perhaps it's not so crazy to imagine them seeing a "pro-U.K." investment story featuring a Trump-May (or Farage?) trade deal. It would certainly give the Brits a bit more leverage when negotiating with Brussels.
Britain's CEOs, though, have to see beyond the buddies act and look at cold reality. Trump's election probably won't halt the tide of investment being delayed or scrapped, which according to a CEBR/Hitachi Capital survey totals 65.5 billion pounds ($82 billion) since the June referendum. They still have unaddressed fears about the U.K. economy, access to the European single market and the health of global trade.
Sure, the weak pound has helped the economy steer through the worst of the immediate referendum hit. But it will lead to rising prices and squeeze consumers and profits. Economic forecasts tracked by Bloomberg point to slowing growth and rising inflation in 2017 -- hardly an investment-friendly environment.
There's plenty of talk about the U.K. gunning the motor of fiscal stimulus, but there's surely more pain to come first. The squeeze of weak demand and rising competition is being felt right now as companies budget for next year. Shares of building material supplier SIG Plc slumped on Friday after it warned of declining business; plumbing supplier Wolseley Plc said in September it would cut as many as 800 jobs and close branches.
Then there's the uncertainty of Brexit itself, which will see the U.K. unpick relations with its biggest trading partner: a complex multi-year process that's uncharted territory for business. Nissan is instructive. The carmaker only stepped back from a threat to ease back on U.K. manufacturing after the government promised to mitigate any rise in tariffs. It's hard for CEOs to plan when their best hope is a secret sweetheart deal that might not come to pass.
Of the surveyed business sectors delaying investment, the top four are IT, real estate/construction, media and finance: so the queue of business leaders looking for guarantees and sweeteners will be long. Finance might not be waiting around to see if the politicians deliver.
None of this is insurmountable. Clearer direction on policy, on a final Brexit arrangement and on fiscal policy would all help. But there's not much wriggle room if U.K. borrowing costs rise while debt stays high. While Farage and Trump arm-in-arm may cheer Brexit's more zealous supporters, there's little there to put a smile on CEO faces.
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 firstname.lastname@example.org
To contact the editor responsible for this story:
James Boxell at email@example.com