Brexit Bulletin: Britain’s Factories Lead the Rebound
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More evidence has emerged of how the British economy is proving resilient to the Brexit vote, with U.K. factory activity reaching a 10-month high in August. The data came on the back of a weaker pound boosting exports.
IHS Markit said its Purchasing Managers Index, which dropped below the key level of 50 in July, jumped by a record to 53.3. That was far better than economists had forecast and sent U.K. equities and the pound higher.
The figures were the latest to signal economic fortitude in the wake of the referendum. The labor market, consumer confidence, retail sales and house prices have all had a strong summer, confounding predictions of a slowdown by some economists.
Still, international investors seeking bargains in London’s prime office market following the vote are being frustrated because sellers won’t lower prices, according to Jones Lang LaSalle.
That’s brought the market to a standstill, which may last for up to six months, said Colin Dyer, chief executive officer of JLL, in an interview in Tokyo on Thursday.
Back in the realm of government, Prime Minister Theresa May is starting to draw red lines.
After convening her Cabinet for countryside talks yesterday, May’s office said she wants to end the free movement of people flowing into the U.K. from the European Union and suggested she is willing to leave the bloc’s single market to do so.
Officials also said they want a bespoke deal rather than one that mimics the relationship between the EU and countries such as Norway, Canada and Switzerland. The Cabinet also decided there’s no need for a parliamentary vote before two years of formal discussions are triggered, even as the courts are being asked to decide whether lawmakers should decide on the timing of withdrawal.
May and Chancellor of the Exchequer Philip Hammond toured businesses in the midlands today to make the case that they will work to keep luring inward investment.
Forgotten the differences between the current raft of EU deals? We’re here to help...
What Does It Mean?
Rupert Harrison, a former U.K. Treasury adviser now at BlackRock, reckons the U.K. is still on the path to a deal not a million miles from those already established by Norway or Canada.
A Norway-style version would see the U.K. join the European Economic Area yet try to negotiate more immigration controls in return for giving up complete access to the EU’s trade markets. A Canada-style pact would lead to a free trade deal with the EU, with additional attempts to include provisions for services and not just goods.
“Bucketloads of detail for devils to hide in,” Harrison said on Twitter.
U.K. pension deficits surged by £100 billion ($131.4 billion) in August as the gap between what companies set aside and their obligations ballooned more than 16 percent in a month.
The gap has swelled since the June 23 referendum, according to PricewaterhouseCoopers’ SkyVal index. The change was a result of sliding bond yields that reduced returns on fund investments and the Bank of England’s decision to ease monetary policy.
Medicine on the Move?
It’s not just the banks that other countries want to attract from London.
Ireland is lobbying for the European Medicines Agency to be moved from the U.K. to Dublin after the Brexit negotiations are completed, according to Bloomberg BNA.
Hungary's government said it too would like to lure the EMA, which is responsible for evaluating and monitoring medicines used in the EU. Italy, Malta, Poland, Spain and Germany are among the others keen on hosting the body.
On the Markets
European indexes and the pound rose on the back of Thursday’s economic data, though Goldman Sachs strategists are still betting against it on the assumption that European leaders take a tough negotiating stance. In a report released yesterday, they predicted sterling will drop to $1.20 over the next year.
Tell us something we don’t know. The Electoral Reform Society today reports that the referendum campaign suffered from “glaring democratic deficiencies.” Voters were put off by the domination of the major political leaders and by negative campaign tactics. The report called for a “root and branch” reform of how referendums are run.