Brexit watch The latest developments
ollowing a short respite, the UK has been embroiled in heated internal discussions and debate, with little surfacing in the way of a solid strategy of how it plans to proceed with its exit from the European Union. After months of sidestepping the question of when it would invoke article 50, the move which will trigger the process of its official departure from the bloc, in early October, prime minister Theresa May announced it would happen in March 2017. This would allow the UK to depart from the bloc by March 2019, ahead of the next European Parliament elections. The announcement, and subsequent responses from EU leaders, all of which carried notions of a ‘hard Brexit’ strategy, set off algorithms on trading platforms around the world that triggered the sale of sterling and saw it crash and hit new lows. While the currency recovered from the ‘flash crash’, it has fallen dramatically against the euro and the US dollar since the referendum, bringing good news for exporters and bad news for importers and manufacturers buying material from abroad. Meanwhile, May has tried to reassure the leaders of devolved nations Scotland, Wales and Northern Ireland that they would be involved in devising an exit strategy. In the last week of October, she met with them for the first time since the vote and promised to create a new joint forum. Scottish and Welsh first ministers Nicola Sturgeon and Carwyn Jones both voiced
90 | Global Trade Review
“deep frustration” saying they were none the wiser after the meeting. Sturgeon is pushing for Scotland, which voted to remain in the EU, to have continued access to the EU single market, even if the rest of the UK opts to leave. The planning continues. Meanwhile, some key trade highlights that GTR has covered over the period follow:
The total number of passports held by companies is 359,953 – highlighting the scope of cross-border services that could be affected.
Passporting fears Data from the UK’s Financial Conduct Authority (FCA) shows that around 5,500 UKregistered financial services firms rely on ‘passporting’ to do business in EU countries, revealing the potential impact an exit from the single market will have on the City of London. Passporting is issued under various EU directives and the nature of the passporting mechanism means that a firm can hold multiple passports under one directive and/or multiple passports to operate cross-border into different member states. It allows firms to operate and sell their services within the bloc without needing additional local licences. The total number of passports held by companies from both sides is 359,953 – highlighting the scope of cross-border services that could be affected.
Export surge The UK’s deficit on trade in goods and services narrowed by £1.1bn in July, giving renewed hope to British exporters. The narrowing trade gap was driven by a boost in British goods exports, which jumped by £0.8bn, or 2%, while imports dropped by 3.6%. The plunging pound
helped boost exports while dampening imports. However, just a few days after the ONS released its data, the British Chambers of Commerce (BCC) published its first economic forecast since the EU referendum, in which it downgraded its GDP growth predictions from 2.2% to 1.8% this year. It also reduced its growth forecast from 2.3% to 1% in 2017 and from 2.4% to 1.8% in 2018.
India trade The UK has set up a trade working group with India in preparation for future deals with the country according to trade minister Liam Fox. It cannot formally make any deals until it has left the EU, a process that is expected to take at least two years from when it is officially declared. However, the government says it is keen to start preparatory talks. Earlier, the Department of International Trade said it has established a bilateral trade working group with Australia. The group is expected to meet bi-annually with the first meeting scheduled for early 2017 in Australia. Commenting on the new groups, partner at law
firm King & Spalding, Iain MacVay, says: “I think it’s fantastic. The UK needs to engage with all its trading partners – not just India and Australia: pretty much everybody. We’re going to need friends in this process.”
Bankruptcy concerns Brexit has been a catalyst for negativity across global economies and insolvency levels are expected to be the weakest since 2009 according to global trade credit insurer Atradius. In a new report, The Insolvency Forecast, the company says the UK’s decision to leave the EU has sparked a downward revision of GDP forecasts, which has led to a worsening of bankruptcy projections in a number of advanced markets. The report forecasts insolvencies in the UK to rise by 2% in 2016 and by 3% in 2017. Greece is expected to face a 6% increase in business failures this year followed by a further rise next year. Insolvencies are also predicted to rise year-onyear in Finland, Switzerland, Denmark, Canada, New Zealand, Austria, Sweden and Luxembourg.