Brexit Bulletin: Whatever Happened to the Brexit Effect?

The U.K. economy beats expectations, Nissan doubles down, but Lagarde stays cautious.

Lagarde: Brexit Uncertainty Is Damaging For Britain

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It’s been the best day for the pro-Brexit lobby since the aftermath of the referendum: data showed the British economy surpassing forecasts in the weeks since, and Nissan announced it would safeguard around 7,000 British jobs by investing in its Sunderland plant.

Thursday started with news that the economy expanded by 0.5 percent in the third quarter, slower than the prior three months but faster than the 0.3 percent predicted and – crucially – clear of the contraction the Treasury and other economists predicted in the run-up to the referendum.

Shortly after that came news from Nissan, which produced one-in-three cars churned out in the U.K. last year. The carmaker said it will produce new versions of its best-selling sports utility vehicles in north-England, pinning its decision on “assurances” from Prime Minister Theresa May’s government.

The twin announcements defied pre-referendum forecasts from the likes of then-Chancellor of the Exchequer George Osborne that a vote for Brexit was a vote for recession and that foreign investment would flee the U.K.

GraemeLeach, a member of Economists For Brexit, was delighted:

“All significant indicators show the economy having a strong head of steam going into the vote and a positive recovery in the weeks since. Uncertainty has not undermined economic performance.”

Still, with May yet to start formal divorce talks or even outline her plan for the U.K.’s future relations with the EU, most economists and executives still warn the resilience will fade.

 “What is damaging first and foremost is the uncertainty,’’ International Monetary Fund Managing Director Christine Lagarde told Bloomberg Television today. BT Group CEO Gavin Patterson said on a conference call that the doubt  “will put investment at risk across the whole of the market.” 

To boost the economy, the Confederation of British Industry today calls on the government to increase annual public investment by £6 billion.

No Passporting?

Brexit is set to rob international banks of the “passporting” rights which currently allow them to access the European Union.

In the most detailed outline yet of the government’s thinking on the future of U.K. finance outside of the EU, Trade Minister Mark Garnier told Bloomberg’s Tim Ross that passporting was likely to end, but would hopefully be replaced with some other relationship.

The City of London.
The City of London.
Photographer: Jason Alden/Bloomberg

An alternative system known as equivalence, whereby banks keep operating in the European single market as long as British and EU regulations are compatible, is nevertheless probably not going to be “good enough” for banks, Garnier said. The status can be withdrawn at 30-days notice.

Garnier touted a “hybrid version” designed especially for banks based in the U.K. The drawback? Britain may have to accept all future EU regulations, something that may irritate voters who voted to leave the bloc.

The comments will confirm the suspicion of banks that current ties to the EU are unlikely to continue after Brexit. The test will be whether finance executives now carry out their threat to shifts jobs and operation overseas to safeguard access to the EU.

Barclays CEO Jes Staley said today his finger isn’t “quivering” above the Brexit relocation button.

Ironically, the opposition Labour Party today accused the government of favoring financial industries over the needs of manufacturers and small businesses in the march towards Brexit.

Want more on passporting? Here’s what you need to know.

Defenders of the 48 Percent

Theresa May is finding the biggest opponents of Brexit could be within her own Conservative Party.

While the Labour Party’s spokesman on Brexit, Keir Starmer, has emerged as a key moderating figure in the debate, the stance of Conservative “Remainers” may matter more, Bloomberg’s Alex Morales reports.

With a working majority of just 16 in the House of Commons, nine rebels could derail her plans if put to a vote. Among those raising their voices are former Education Secretary Nicky Morgan, onetime Business Minister Anna Soubry, and ex-Attorney General Dominic Grieve.

“There’s a significant number of people in the Conservative Parliamentary party who are very alarmed by the sudden talk of ‘hard Brexit,’” Morgan said in an interview. Support for a softer Brexit is “enough to threaten the majority – and more.”

Brexit Bullets

  • Telefonica puts off potential sale of shares in O2 U.K. unit until after year-end
  • Britain’s separation from the EU “can’t be a la carte,” Germany’s finance minister said
  • Scotland to start own stock exchange using Blockchain technology
  • Brexit threatens Eastern EU grants, Hungarian official says
  • ABB tumbles as quarter orders decline amid Brexit worries
  • Romania is interested in hosting EU agencies moving from U.K., says Prime Minister
  • Bill Gates tells ITV the Brexit vote caused “concern” and “a little uncertainty” in science
  • Schneider CFO sees U.K. construction adopting wait-and-see on Brexit
  • Interface cites ‘Hard Brexit’ concern as misses third quarter estimates

On the Markets

U.K. government bonds fell, sending yields to the highest since Britons voted to leave the European Union, as investors reassessed the future path of monetary policy following the morning’s above-expectation GDP data.

And Finally...

Brexit won’t stop some building. Axa’s real estate unit said yesterday it will proceed with a plan to build the tallest approved tower in the City of London financial district despite Brexit. 

“We are taking a long-term view of this investment,” Pierre Vaquier, chief executive of the Axa unit, said in the statement. “The decision to proceed underscores our confidence” in the project, “coupled with the anticipated breadth of demand from local and global occupiers for easily accessible space in a prime location.”

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