Brexit Bulletin: Bills, They’re Multiplying

With the Article 50 bill nearing final approval, more estimates of the cost of Brexit roll in.

Allianz's MacDonald: Lots of Brexit Business Uncertainty

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As Theresa May’s parliamentary bill to activate Brexit continues its way through the House of Commons, a series of reports over the past 24 hours point to mounting bills of the financial kind.

The Institute for Fiscal Studies said on Tuesday that the government will need to maintain austerity if it wants to eliminate Britain’s budget deficit by 2025, warning that Brexit creates “unprecedented” economic uncertainty.

Meeting the target will require spending cuts and tax increases of as much as £34 billion ($43 billion), the research group said, ahead of Chancellor of the Exchequer Philip Hammond’s March 8 budget.

Meanwhile, the research group Bruegel estimated that global banks may relocate 1.8 billion euros of assets to the continent after Brexit, putting as many as 30,000 U.K. jobs at risk.

The researchers calculated about 17 percent of all U.K. banking activity can be attributed to customers inside the EU. That rises to 35 percent for U.S. banks who have their European headquarters in London.

London-based finance firms will likely have to move about 10,000 employees into these new EU entities, Bruegel said. An additional 18,000 to 20,000 people in associated professions, such as lawyers, consultants and accountants, may also have to relocate.

Over in the U.S., an MIT study estimated that Brexit could cause a 9.5 percent drop in U.K. output, a negative impact on gross domestic product per capita of almost four times the previous estimate.

Finally, the European Commission told May she must settle the U.K.’s budget commitments in full when it leaves the EU. The bill is estimated at 60 billion euros and haggling over it is set to be one of the biggest obstacles to a smooth divorce.

As Commission spokesman Margaritis Schinas said:

Inflation Worries

Inflation is also starting to take a toll on the British economy.

A report on Wednesday showed starting salaries for permanent staff rose the fastest in nine months in January, while Kantar Worldpanel said grocery prices are now accelerating after a period of deflation that ran from September 2014 to December 2016.

Against such a backdrop, Bank of England policy maker Kristin Forbes said she’s becoming “uncomfortable” with the central bank’s monetary policy stance and that faster inflation may mean she'll soon seek higher interest rates.

May’s Progress

The prime minister kept her plan to trigger Brexit on track, though only after promising critics – including members of her own Conservative Party – a vote on the final deal with the EU.

The government fended off an amendment to its bill which would have forced a binding vote on the final Brexit pact before it’s too late for it to be changed. It did so by offering a vote on the “final draft agreement” with the EU, but warned defeat of it would mean no deal rather than a return to the negotiating table.

So far, all attempts to tweak the wording of the bill have failed. The House of Commons will discuss more amendments on Wednesday, including guarantees for EU citizens already living in the U.K. The next round of voting may also trouble Labour Party leader Jeremy Corbyn, who is trying to quell a revolt in his ranks. 

The Conservatives still hold a lead over Labour in polls, with the latest survey from ICM saying they are backed by 42 percent of people versus 27 percent for the opposition. 

Scotland’s Parliament voted on Tuesday by 90 to 34 not to trigger the Brexit talks, although the motion is largely symbolic. The U.K. Supreme Court has already ruled that the devolved assembly has no influence over Westminster on this issue other than to demonstrate the dissatisfaction of Scots. A poll released on Wednesday showed 51 percent are in favor of remaining part of the U.K., with support for Scottish independence at 49 percent. That’s a narrower gap than normal, with previous polls suggesting the split was roughly 55 percent to 45 percent.

Bloomberg’s Alex Morales has everything you need to know about the Brexit bill’s progress through Parliament.

On the Markets

The pound fell to a two-week low on Tuesday as concerns about the nature of Brexit breakup made it one of investors’ main targets during a broad-based dollar rally.

Global investors are also struggling to come to terms with political risks, with Brexit and the election of Donald Trump putting them on alert ahead of votes in France and Germany. French bonds, for example, have been hit hard by the recent travails of presidential candidate Francois Fillon and concern that could increase the chances of anti-euro Marine Le Pen winning France’s presidential poll.

Brexit Bullets

  • General Motors says Brexit has cost it $300 million, less than the $400 million it previously forecast
  • Bank of Korea Governor Lee Ju-yeol says Brexit is a risk to exports, which account for 40 percent of economy
  • Valdis Dombrovskis, the EU commissioner in charge of financial services, says U.K. sector will lose EU passport if it quits the internal market
  • British tax and customs officials are studying how to respond if the U.K. leaves the EU without a trade deal, says Jim Harra, a director general for customs, according to Politico.
  • Some 43 percent of respondents to a ICM poll for the Guardian said Brexit will have a negative impact on the economy, although a majority think it will have no effect on their personal finances.

And Finally...

Fund manager James Tomilson Hill III is arguing the pound’s devaluation means London’s National Gallery should pay him £8 million more for a picture he was previously willing to sell for just over £30 million, according to the Daily Mail.

Hill, vice chairman of Blackstone Group, had agreed to sell “Portrait of a Young Man in a Red Cap” to the gallery, the newspaper said. But sterling’s slide means he risks being out of pocket given what he paid for the masterpiece in 2015.

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