Brexit Butterflies

26 May 2017

So far this week in the historical detachment of the UK from the European Union (do try to keep up…we’ve already had one referendum based on universal ignorance of the facts):

Former Conservative party treasurer Michael Spencer has denounced efforts by some EU countries to strip London of key financial services after Brexit. Speaking to BBC Radio 4's Today programme, he said: "Damaging London, in my opinion, will also damage Europe and I think it is in the interests, certainly of the UK but certainly of the EU as well, to make sure that London's capability as a global financial centre remains properly intact and undamaged".

Concerns over Brexit could lead to Britain losing the top spot for Foreign Direct Investment in Europe, according to a recent survey which  found that 31% of investors expect the UK's attractiveness for FDI to decline over the next three years, with 9% of respondents saying Britain's withdrawal from the EU would cause them to shift their investment plans from Britain to Europe. Mark Gregory, the chief economist at Ernest & Young, said: "The research suggests that the EU referendum vote and its aftermath may be having an influence on global perceptions of the UK's medium to long-term attractiveness. Decisions on the majority of investments made in 2016 would have been made up to three years ago, which helps to explain the UK's solid performance last year."  Before we joined what was then the European Economic Community we – and they – were worried about the impact of too much foreign direct investment, how times change…

A survey of 800 managers by the CMI has found that almost half of company managers want the next UK government to prioritise access to the single market and freedom of movement of people during the Brexit talks. Only one in five said cutting corporation tax should be a priority.  Funny how the anti-immigration lobby has hi-jacked the decision which for many was a declaration of independence from Brussels control, not a dash to block up the borders.  A European Economic Community still sounds like a good idea, unfortunately the 21st Century Politicians were just not up to it.

The Centre for Economics and Business Research has warned that failure to strike an EU deal giving access to the single market for services would cost the UK economy £25bn to £36bn a year. Elsewhere, an article on the 25th in the Times looked at how City firms are preparing for Brexit. One firm’s Brexit tracker found that more than a quarter of the 222 firms it monitors said they would move jobs or business, a 50% increase in four months. Omar Ali, Ernest & Young’s UK financial services leader, said he does not believe the City will wither if banks depart. He said: “I am definitely not a doom monger. It is absolutely clear that no one location is emerging as the winner of business from London. Their ecosystems cannot replicate what we have here.”

Meanwhile, an article in the Financial Times on 22nd May reports that Paris is stepping up its efforts to attract financial sector activities from the UK by replicating the English law and extending non-dom tax exemptions for foreigners. Qatar is also attempting to woo the UK's financial community with the Qatar Financial Centre (QFC) highlighting the country's "compelling tax regime" and "transparent legal and regulatory environment" during a series of roadshows.22/5.  Let’s see how the World Cup goes, first.

The European Central Bank has taken time out from bashing the Greeks to counter claims by the Bank of England that a messy Brexit would harm the European economy, stating that its impact on the eurozone recovery would not be significant. However, the ECB did highlight continued fragility in government finances despite a surge in growth in the eurozone. "There are risks that euro area bond yields could increase abruptly without a simultaneous improvement in growth prospects," said the ECB in its Financial Stability Review. The ECB specifically warns of a "snowball effect" in Italy and Portugal. Writing in The Daily Telegraph, Ambrose Evans-Pritchard says the “Goldilocks moment for the eurozone this spring…has the life-expectancy of a Monarch butterfly.”