Brexit Bulletin: Changing Economic Fortunes

  • Europe is picking up while Britain is slowing down
  • The status of EU citizens in Britain is getting sticky

Sign up to receive the Brexit Bulletin in your inbox, and follow @Brexit on Twitter.

Mario Draghi and Mark Carney are trading places.

Once plagued by Greece’s fiscal crisis and a populist uprising, European Central Bank President Draghi now oversees an accelerating euro-area economy where political risks are subsiding. By contrast, Bank of England Governor Mark Carney sees signs that Brexit is slowing the British economy.

Mario Draghi and Mark Carney (file pic)

Mario Draghi and Mark Carney (file pic)

Photographer: Simon Dawson

The change in fortunes is reflected in monetary policy outlooks on each side of the English Channel, write Bloomberg’s Alessandro Speciale and Jill Ward. Carney is preparing to leave interest rates lower than they might have been without Brexit, while Draghi is nearing the moment he can start tightening monetary policy. 

The National Institute of Economic and Social Research said on Wednesday that the BOE won’t raise rates until after Brexit.

“They almost swapped places,” said Marchel Alexandrovich, senior European economist at Jefferies International Ltd in London. “Carney may be in the same situation Draghi was two years ago with an economy under threat from political uncertainty.”

Draghi speaks before the Dutch Parliament on Wednesday, while Carney will address reporters in London on Thursday after setting interest rates. The European Commission also issues new economic forecasts this week.

An irony is that some Britons who campaigned for Brexit argued it was necessary to break away from a failing economy. Now the International Monetary Fund is predicting the euro-area will outpace the U.K. in 2018 for the first time since 2010, albeit only just.

To be sure, the British economy has beaten expectations since the referendum and its 4.7 percent unemployment rate is half the eurozone’s 9.5 percent, but a shift is still potentially underway.

Fight Over Citizens’ Rights

Prime Minister Theresa May’s team is squaring up to fight demands from Brussels that the 3.2 million EU citizens living in Britain should enjoy exactly the same privileges as they do now, even after Brexit.

The most controversial argument from within the EU is that the European Court of Justice continues to provide the final guarantee of entitlements. May has already promised Brexit will mark the end of the ECJ holding sway in the U.K. As Tim Ross and Ian Wishart report, the U.K. has drafted a two-page “hit-list” of rights currently enjoyed by EU nationals in Britain.

“If they insist that EU citizens living in the U.K. are protected by EU law under the ECJ, that is an impossible demand,” former Conservative leader Iain Duncan Smith told Bloomberg.

The problem for May is that any delay in resolving rights would prompt the EU to withhold the discussion she wants over a free-trade deal.

Campaign Trail

Questioned by the BBC on the campaign trail on Tuesday, opposition Labour Party leader Jeremy Corbyn declined several times to confirm that Britain would in fact leave the EU if he was prime minister.

Jeremy Corbyn on May 9. Photographer: Simon Dawson/Bloomberg
Jeremy Corbyn on May 9. Photographer: Simon Dawson/Bloomberg

That was even after he used a speech in Manchester to rule out the U.K. staying in the EU, saying the issue had been settled and that he would focus on a “jobs first” Brexit.

The Tories smelled an opportunity. “The chaotic incoherence of Jeremy Corbyn’s approach to Brexit means that the 27 other EU countries would make mincemeat of him in the negotiations,” said Brexit Secretary David Davis.

As many as 100 Labour lawmakers are set to walk out to form their own breakaway group if Corbyn stays on as a leader after a “Tory landslide,” the Telegraph said.

Labour will soon detail a plan to hike the corporation tax by more than a third.

May and her husband Philip had an easier ride on the BBC, telling “The One Show” about her shoes, how they met and who takes the trash out. The appearance exposed the contrast between how May and Corbyn are approaching the election. 

On the Markets

Pound and gilt yields are both seen being restrained by caution over Brexit. While the Bank of England is set to revise up its inflation outlook this week, all 55 economists surveyed by Bloomberg expect it to leave its benchmark interest rate at 0.25 percent.

Royal Bank of Scotland is discovering it’s already costing more to borrow because Brexit threatens to end preferential treatment enjoyed by members of the European Economic Area on top-rated bonds.

Meanwhile, Germany’s top banking supervisor cautioned EU policy makers against rushing to force the lucrative business of clearing euro-denominated derivatives from the U.K. after Brexit.

“I would warn against jumping too quickly on solutions that look interesting at first glance, but could end up triggering a lot of protectionist collateral damage,” Felix Hufeld, president of BaFin, said on Tuesday.

Brexit Bullets

  • EU officials meet in Brussels on Wednesday to review negotiating directives for Brexit talks
  • The Times says Conservative government policies over the past six months reflect demands made by automaker Nissan, citing a letter from the firm’s European chairman
  • Goldman Sachs CEO Lloyd Blankfein is wondering how many existential crises the EU has left
  • Dutch PM Mark Rutte hopes for a decision between October and December on starting talks on future EU-U.K. relations
  • Irish bar owners warn that Brexit may hit their takings
  • Canada’s Public Sector Pension Investment Board chose London as its European hub and plans to spend as much as £4.6 billion ($6 billion) in the region over the next five years
  • Delek Group, the Israeli energy company that bought U.K. oil explorer Ithaca Energy this year, is seeking a London listing
  • A lack of clarity on Brexit is holding some companies back from hiring, with finance and IT the most hit, Adecco says
  • John Springford of the Centre for European Reform details why a large parliamentary majority for May would weaken checks on the prime minister’s power
  • Insurer Hiscox is to set up a European subsidiary in Luxembourg because of Brexit

And Finally…

When the U.K. says goodbye to the European Union, German lawyers may have to say auf Wiedersehen to a familiar bit of Britain.

Noerr LLP is one of many law firms that registered in the U.K. for the Limited Liability Partnership designation as an alternative to the German Partnerschaftsgesellschaft and the appendix ParG, both of which clients found confusing.

Noerr and other firms may have to return to less recognizable acronyms because the U.K.’s vote last year will likely destroy the financial and legal advantages of using the British model.

For more on Brexit follow Bloomberg on Twitter, Facebook and Instagram, and see our full coverage at

    Before it's here, it's on the Bloomberg Terminal.