Tony Ward is chief executive of Clayton Euro Risk
“There may be trouble ahead…”, sang Fred Astaire in the 1936 film, Follow the Fleet. He could well have been singing about today as we near the finishing line… or should I say the starting line, as it’s this Wednesday the real business begins.
This week, Prime Minister Theresa May confirmed that she will send Brussels a letter invoking Article 50, the legal procedure for leaving the European Union, on 29 March. It certainly feels like it’s been a long while coming. Now, of course, the real fun starts as the invocation of Article 50 will open potentially tricky negotiations that will continue for two years. Perhaps longer.
Regular readers of my blog will know that I favour a ‘soft Brexit’ as I’ve always felt this offers the best outcome for trade, a transition period to ensure businesses have enough time to adapt to working practices plus protection of The City of London and our financial institutions. We wait to see but I’m now certain we won’t be looking at a ‘soft Brexit’.
Theresa May has already outlined her priorities, which are to end the free movement of people between Britain and the EU and to escape the jurisdiction of the European Court of Justice. She has also resigned herself to the fact that these demands mean that Britain must leave the EU’s single market – so we are heading for a ‘hard Brexit’ then.
There will be winners and losers in this mash-up.
Last week, manufacturing’s representative body the EEF said that manufacturers are increasingly worried that Britain’s post-Brexit arrangements with the EU could undermine their success, leaving the industry worried about its future.
The idea that ‘no deal is better than a bad deal’ could mean leaving the EU with no free trade deal in place. This could harm companies that rely on trading parts and goods across the EU as they could end up attracting taxes on those transactions, the manufacturing group said.
The sectors are showing little sign of rebalancing, despite expectations that the weak pound would help manufacturers, while a change in London’s status as the EU’s financial hub could dent the City’s fortunes.
It is crucial that Britain has a say in setting rules across the EU – even after Brexit – to help keep trade going, the EEF said, while border taxes should remain at zero and customs rules should enable ‘frictionless trade’. “A loss of access to both the single market and the customs union would condemn the manufacturing sector to a painful and costly Brexit,” the EEF warned.
It continued: “Any suggestion that ‘no deal is better than a bad deal’ is simply unacceptable to an industry that accounts for 45% of all UK exports.”
I agree. But on the other hand, a recent study from the CBI and PwC suggests that financial services are now pretty upbeat as business levels are increasing and profitability is on the up. Their confidence is returning.
“It’s great that financial services – not withstanding Brexit uncertainty – with volumes expanding at a robust pace, profitability improving and hiring on the up,” said CBI chief economist Rain Newton-Smith. “Underlying business in the sector is holding up well, and optimism about global markets, along with stronger global growth, is having a positive knock-on effect.”
All well and good here. This sentiment has been helped by the likes of Deutsche Bank who, last week, agreed to move to a new City headquarters in 2023. “The move underlines the bank’s commitment to the City of London and the importance it attaches to being an employer of choice in the capital,” read the memo from Garth Ritchie, the bank’s UK chief executive. “It will advance the bank’s strategic goals of increasing efficiency, reducing complexity and strengthening links between the business divisions and infrastructure functions.”
But, just as the waters appear to be clearing, they are muddied by Goldman Sachs doing the opposite: beginning to move bankers from London to France, Germany and elsewhere on the Continent as it executes the first phase of its Brexit contingency plan.
Richard Gnodde, chief executive of Goldman Sachs International, said that the Wall Street investment bank would move staff out of London and hire new employees on the Continent in their ‘hundreds’ in the months before Britain leaves the EU.
Several other big American banks, including Citigroup, Morgan Stanley and Bank of America have outlined contingency plans to move thousands of employees from London to other financial centres in Europe because of Brexit.
Confusion reigns, hence Goldman’s decision. “It is going to be a long time before we know what the outcome of the (government’s Brexit) negotiations look like,” Mr Gnodde said. He added that Goldman ‘cannot bank’ on a transitional phase for the financial services industry before the UK leaves the EU in 2019.
Yes, trouble does lie ahead. Most people can quote the next line of the song about ‘moonlight and music’ but it’s verse two I think is most apt: ‘Before the fiddlers have fled, before they ask us to pay the bill and while we still have the chance, let’s face the music and dance.’
Irving Berlin knew a thing or two about Brexit.