Brexit Bulletin: Theresa May’s Day Undermined by Division

While Theresa May’s fiercest opposition may lie within her party, another obstacle emerges: eastern Europe’s hard red lines on free movement.
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Simon Dawson/Bloomberg

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Winston Churchill once told an impressionable young lawmaker that a politician’s real enemies sat not in the opposition but within the same party. 

Prime Minister Theresa May is perhaps discovering that’s the case as she heads to Birmingham this weekend for her first Conservative Party conference as its leader. With opposition parties in disarray, it should be a moment to celebrate and consolidate power.

Instead, as Bloomberg’s Thomas Penny reports, new faultlines are emerging within the Tories over Brexit. On one side, Foreign Secretary Boris Johnson, Brexit Secretary David Davis and Trade chief Liam Fox seem to be angling for a swift, hard break with the European Union. By contrast, former finance ministers George Osborne and Ken Clarke are counseling caution and patience.

That leaves the prime minister, who turns 60 tomorrow and who has a parliamentary majority of just 12, under pressure to assert her leadership and to start fleshing out her plans. Brexit will be discussed on Sunday, leaving the following three days of conference for her domestic goals.

“The principle source of opposition at the moment for Theresa May is not the mainstream opposition parties, but the challenge of establishing basic unity within her own government,” said Matthew Goodwin, professor of politics at the University of Kent.

Flying Blind

Ask executives what word they associate with Brexit and they’re likely to say “uncertainty.

On the eve of the 100 day mark since the U.K. voted, firms are still in the dark about what May is looking to achieve in the exit negotiations. That is impinging on the ability of executives to make decisions on investment and hiring, according to Bloomberg’s Jill Ward.

A case in point: Japan’s Nissan Motor.

“What is difficult today is the uncertainty,” Chief Executive Officer Carlos Ghosn told Bloomberg Television’s Caroline Hyde yesterday. “What are going to be the conditions of the Brexit?”

The automaker may even ask the U.K. to compensate it for any fallout from leaving the EU as a condition for making new investments in the country. It has more than 6,000 workers at its Sunderland factory, and suppliers to the plant employ about 24,000.

Some good corporate news:  Bank of Montreal has asked brokers to find it a new London headquarters as the Canadian lender seeks to consolidate its operations in the city, according to three people with knowledge of the plan. 

Data today showed consumers appear to be shrugging off some initial Brexit angst, but that the current account deficit widened in the second quarter as Britain continued to record heavy outflows of investment income. 

Nationwide published housing statistics showing a cooling in house-price growth amid “subdued” demand. Still, a report also showed the economy grew 0.7 percent in the second quarter, slightly more than the 0.6 percent previously estimated. 

More Important Than Money

When it comes to the Brexit negotiations, the 11 former Communist countries that have joined the bloc since 2004 see freedom of labor movement as the deal-breaker.

While richer nations pour billions of euros into the economies of their poorer neighbors to help them catch up, opinion polls show that for the more than 100 million people who live in the area that stretches from the Baltic to the Black Sea, the ability to live and work anywhere in the EU outweighs all other aspects of membership, according to Edith Balazs and Marek Strzelecki of Bloomberg.

The Czech Republic today demanded the U.K. trigger Brexit negotiations without delay and urged May to protect other nationals from “hate attacks” after a Czech man was beaten to death in London last week.

Tougher Than the Rest

The U.K. is planning to surpass its neighbors in imposing tough new rules on investment research, even as the country heads for the EU exit.

The Financial Conduct Authority yesterday proposed stricter rules for how brokers can woo investment firms with research and other inducements as the U.K. gears up to implement the EU’s sweeping market-rule overhaul known as MiFID II.

Keeping British rules close to those in the EU may prove crucial if U.K.-based banks are to retain access to the single market.

Under the proposals issued on Thursday, the FCA would extend a ban on accepting any “monetary and non-monetary benefits from third parties,” including investment research, across the fund management industry, from hedge funds to mutual managers.

On the Markets

Foreign investors boosted their holdings of gilts in August, reversing a decline from the previous month. August saw the Bank of England cut interest rates and reignite its quantitative-easing plan, pushing gilts to a return of 2.8 percent, based on the Bloomberg U.K. Sovereign Bond Index. 

And Finally...

Matteo Renzi is being haunted by Brexit. Although the Italian prime minister called his Dec. 4 referendum to approve constitutional reform and the U.K. vote was about membership of the European Union, the parallels between the two campaigns are stacking up. John Follain lists five of them.

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