Uncertainty prevails

Tony Ward

November 7, 2016

Tony Ward is chief executive of Clayton Euro Risk

So, Theresa May has vowed to enact Brexit ‘in full’, despite the High Court’s latest ruling, which has turned the government’s plans on their heads. Mrs May told the Sunday Telegraph she was appealing against the court’s decision because there was ‘an important principle at stake’.

Last Thursday, the High Court ruled that parliament should vote on when the government can trigger Article 50, thus beginning the formal process of leaving the EU. Whatever a Brexit ‘in full’ means – and I truly hope it doesn’t mean a ‘hard Brexit’ – we can all keep calm and carry on. For the time being, at least.

While Mrs May is calling for ‘a focus on how we can come together as a country to make the most of this great national opportunity’ others aren’t keen to make this happen easily. Labour leader Jeremy Corbyn has insisted on a ‘Brexit bottom line’, which includes access to the single market. He said: “The court has thrown a big spanner in the works by saying parliament must be consulted. We accept the result of the referendum. We are not challenging the referendum. We are not calling for a second referendum. We’re calling for market access for British industry to Europe.”

So what are we to make of this? Certainly there is a degree of political posturing going on but what worries me more than anything is to what extent this game-playing is driving uncertainty. And that’s one thing the market hates.

I’ve already expressed my concerns about the fall-out pursuit of a ‘hard Brexit’ could have on the City of London. Data published last week suggested that the City’s financial surplus hit a record high of more than £60bn highlighting the importance of the industry. Financial services were again the biggest contributor to mitigating Britain’s trade deficit of nearly £40bn last year. According to a report by The City UK, the surplus recorded by the sector increased by £185m year-on-year to £63.4bn in 2015. The surplus has never been higher and equalled those of the US, Switzerland, Luxembourg and Singapore combined.

Miles Celic, The City UK’s chief executive, said that last year the financial services industry made its ‘most significant contribution’ to exports: “Our largest trading partners are the US and EU, but our ability to strengthen and deepen trade and investment ties with key developed and emerging markets…will be absolutely central to enabling us to deliver economic growth, particularly in the context of Brexit.” He continued: “It is essential that the government remains focussed on implementing bold policies that protect the attractiveness and competitiveness of the UK as a place to do business through Brexit and beyond.”

Senior Wall Street executive Calm Kelleher, who is president of Morgan Stanley, recently warned it was imperative that the European Union and Britain work together to avoid the break-up of the City or they risk losing the capital market services that London provides to New York. He argued that hard Brexit could become an example of ‘bluffs gone wrong’ and that the financial sector was facing a ‘looming cliff’ more than any other areas of the economy. Mr Kelleher suggests that if the City became a ‘bargaining chip in a great game’ both sides could be losers and ‘the prize could move somewhere else, perhaps to New York’. It must not be forgotten, he said, that London is Europe’s financial centre and there is ‘no real capital market’ outside the City. Any loss of activity would hurt more than just highly-paid bankers.

“Viewed from New York, the failure to rule out a hard Brexit has the surreal feeling of opposing sides, holding the same hostage, threatening to tear up the pan-European asset that is the City of London,” he said.

We must not let political shenanigans distract us from the importance of the City in the debate of what Brexit ‘in full’ actually looks like.

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