Brexit Bulletin: Banks Already Plotting City Exodus

It’s planning time at London-based banks, and the U.K is digesting real post-Brexit data.

Big Banks Forego Patience as U.K. Ponders Brexit Deal

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Larger investment banks with their European headquarters in London are already making plans for their own withdrawal.

Many plan to start the process of moving jobs from the U.K. within weeks of the government triggering Brexit, people briefed on the plans of four of the biggest firms told Bloomberg's Gavin Finch.

That suggests the banks may move faster than their public messages of patience would imply, and reflects dismay with the U.K.'s lack of a clear plan to protect its status as a global financial hub. There are concerns British-based banks will lose the right to sell services freely around the European Union.

“This year is all about understanding potential scenarios, your options, and what your contingency plans are,” said Andrew Gray, head of Brexit for U.K. financial services at PwC, which is advising banks on how best to respond to Brexit. “Some plans will take time to execute, and firms can’t afford to wait until Jan. 1, 2019, and risk not being able to do business.”

Brexit Inflation

U.K. inflation accelerated faster than forecast in July and import costs jumped the most in four years, signs that sterling’s post-referendum drop is pushing up prices.

Consumer-price growth picked up to 0.6 percent from 0.5 percent in June, the Office of National Statistics said. Economists surveyed by Bloomberg had forecast that it would stay at 0.5 percent. The rise was fueled by input costs, which surged an annual 4.3 percent last month, ending 32 consecutive declines, while import prices jumped the most since 2 011.

Today’s data are the first in a string of hard numbers to come this week which will give a glimpse into how the Brexit is impacting the economy

Activist Investors on the Alert

Brexit may have made Britain more attractive to activist investors.

Since the referendum, funds that agitate for changes in corporate strategy or seek board seats in an effort to lift share prices have stepped up their presence at a growing number of London-listed companies, from brewer SABMiller to bookmaker William Hill to television and film distributor Entertainment One.

Activists say the Brexit vote has created opportunities by driving down the pound and the share prices of some U.K. companies, according to Bloomberg’s David Hellier.

Research firm Activist Insight tracked six new campaigns involving U.K. companies since June 30, bringing the total for the year to 30—four more than in all of 2015. 

Research Recap

The Resolution Foundation warns today that Brexit will hit the earnings of lower-paid U.K. workers even if the supply of foreign labor is reduced by tough cuts to inward migration.

Resolution estimates that the salaries of U.K. workers in the industries most affected by migration would rise between 0.2 percent and 0.6 percent by 2018 if the inflow was immediately lowered to below a government target of 100,000. Net migration currently stands at 333,000 a year.

But Resolution said that any increase would be wiped out by a 2 percent drop in real incomes implied in Bank of England forecasts released this month, which showed weaker economic growth and faster inflation.

Meantime, Global Counsel advised the U.K. to strike trade deals with the U.S. and China and not spend too much time negotiating with India, Canada or Australia. 

The criteria used by the group to work out where to focus were the strength of economies, the height of trade barriers and whether U.K. investment already flowed there. How well British exporters already did was also taken into consideration.

On the Markets

It’s round two of the Bank of England’s effort to sell long bonds after failure last week to find enough sellers of the gilts.  Tuesday sees the central bank again seeking 1.17 billion pounds ($1.5 billion) of debt due in more than 15 years.

European stocks were down on Tuesday, as investors continue assess a post-Brexit rally.

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And Finally...

It’s not only the U.K. government which is on the look out for signs of how Brexit is impacting the economy. New Zealand Trade Minister Todd McClay is asking companies which export to Britain about the potential hit. The aim is to help “safeguard” New Zealand’s interests.

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