Brexit Bulletin: After the London Fire

  • The loss of life at Grenfell Tower overshadows start of talks
  • EU and U.K. scheduled to begin negotiations on Monday

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

Brexit took a backseat on Thursday as the devastating Grenfell Tower fire in London demanded the attention of politicians.

Pedestrians look up at Grenfell Tower in London on June 14.
Photographer: Adrian Dennis/AFP via Getty Images

Prime Minister Theresa May ordered an investigation into the tragedy, which provided another test of her leadership amid growing public anger over years of budget cuts and warnings about neglect.

Social media came down hard on May, who visited the scene and was accused of not meeting with locals, while opposition leader Jeremy Corbyn was praised for his warmth.

Bloomberg’s Charlotte Ryan visited London’s Kensington to report how the burnt-out shell of an apartment tower became the symbol of everything locals say has gone wrong in the capital city.

Talks to Begin

The fire meant May put aside talks with Northern Ireland’s Democratic Unionist Party, whose 10 lawmakers she needs to give her a working majority in Parliament.

May’s Conservatives have reached a broad agreement with the party on a program for running the U.K., with delivering Brexit a priority, a party official said. The Queen’s Speech, in which the government’s legislative plans will be unveiled, was set for next Wednesday.

By that time Brexit talks will have begun. U.K. and European Union officials will finally sit down in Brussels on Monday for the start of the divorce negotiations that will work out the terms for Britain’s departure from the bloc on March 29, 2019.

Brexit Secretary David Davis and EU chief negotiator Michel Barnier will handle the opening day. European Commission President Jean-Claude Juncker said on Thursday that “Brexit is a tragedy” and he would like a “stable relationship” with the U.K.

Talks will kick off after YouGov reported on Thursday that 70 percent of Britons want to see Brexit carried through: 43 percent think May should stick to her-pre election strategy and 23 percent are keen for her to moderate it. Still, May’s favorability rating plunged to 29 percent from 42 percent and 63 percent viewed her unfavorably

Reports suggested May had added pro-EU First Secretary of State Damian Green to her committee overseeing the negotiations.

The Financial Times said the EU is weighing asking Britain to make a financial settlement totaling a gross €99.6 billion (£86.9 billion.)

Read more: Hard, soft or scrambled Brexit? Here’s our latest guide to the talks.

Custom-Made Solution

Brexit watchers increasingly suggest May should take a softer line by rethinking her call to pull Britain from the EU’s customs union.

The union allows exporters to trade tariff-free with the bloc as well as limiting border checks and other bureaucracies. By speaking for 500 million people the union gives the bloc leverage when it negotiates deals with the rest of the world (in theory). 

Staying a member — perhaps just for the short term or during a post-Brexit transition — would save exporters from the cliff-edge of uncertainty and duties. It would also give the government time to negotiate a long-term trade deal, perhaps including services.

While some have suggested a “Norway-style deal” in which the U.K. remains in the single market and leaves the customs union, that would risk Britain having to give ground on its commitment to end freedom of labor movement.

“The better choice for Britain would be to initially remain a member of the EU customs union until a new and deeper relationship can be negotiated,” Andrew Duff of the European Policy Centre wrote in a report published on Thursday.

Remaining in the customs union would appear to be the strategy favored by Chancellor of the Exchequer Philip Hammond, whose sway has grown following May’s electoral defeat. He once said leaving the union would impose a cost on exporters.

It might also please the Democratic Unionists, who fear the imposition of a hard border between Northern Ireland and the Republic of Ireland. The FT said the matter isn’t part of the deal the DUP is brokering with May.

The cost of continuing in the union would be that the U.K. wouldn’t be free to negotiate its own bespoke trade accords with 85 percent of the world, including the likes of fast-growing China. That would undermine May’s claim that Brexit will create a “global Britain.” International Trade Secretary Liam Fox might be out of a job, too.

Brexit in Brief

  • HSBC’s investment bank chief, Samir Assaf, says a softer Brexit would be “very good news” and could mean fewer jobs leaving London
  • Inflation alarm bells ring at the Bank of England as the pound deepens policy split
  • Majestic Wine says inflation-squeezed consumers will stop going out before they stop buying bottles of wine. Brexit is “likely to have a longer-term impact on demand,” it says
  • The British corner sofa is the latest Brexit casualty, says Bloomberg Gadfly’s Andrea Felsted.

And Finally…

EU citizens want a Brexit-style vote too, but only so most can say “yes” to staying in the bloc.

According to a poll of almost 10,000 EU citizens by the Pew Research Center, 53 percent of those asked in nine countries said they would like a referendum on whether to remain in the EU.

But only 18 percent said they would back leaving. Greece and Italy are home to the largest support for quitting the EU, although even in those countries a majority want to stay.

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

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