The U.K. is unlikely to get the lobbying assistance from European Union companies it was hoping for in the Brexit negotiations.
Chancellor of the Exchequer Philip Hammond this month argued that EU firms would be hurt if the City of London’s power was diluted after the U.K. splits from the bloc. That echoed calls from financial services industry groups, and was based on the hope that executives would then pass on the same message to their governments.
The problem is that—as European chief executive officers tell Bloomberg’s Stephanie Baker and Fabio Benedetti-Valentini–firms say they’ll be just fine if London banks lose access to the region, given that capital and skills are mobile, and continental banks can step in to pick up business.
“I’m not worried about that at all,” said Paul Polman of Unilever. “I’m sure that the financial market is looking for alternatives in places like Frankfurt, or others are very well placed for that.”
The stakes are high, with the U.K. accounting for 78 percent of EU capital-markets activity, according to think tank New Financial, while financial services generate about 10 percent of British economic output.
Separately, the manufacturing association EEF today asked the U.K. to maintain EU regulations until after it lays out its Brexit plan, to avoid a policy vacuum and safeguard entry for exporters.
Slowdown Only Delayed?
Much has been made of the resilience of the economy to the referendum shock, but there is mounting evidence the slowdown may only be delayed.
The Bank of England will cut interest rates close to zero later this year, according to a Bloomberg surbey of economists, as economic growth cools to just 0.7 percent in 2017 from 1.7 percent this year. That would be the worst performance since 2009, when the country was last in recession.
The BOE’s regional agents today reported that activity remains positive but has slowed, while the OECD cut its forecast to show the U.K. expanding 1 percent next year, half the pace it projected in early June.
The U.K.’s budget deficit is declining more slowly than previously forecast, limiting room for Hammond to ease fiscal policy next month.
The shortfall stood at £33.8 billion ($44 billion) in the first five months of the 2016-17 fiscal year, the Office for National Statistics said on Wednesday. Back in March, the Office for Budget Responsibility saw the deficit falling more than a quarter in each of the following two years, a projection that will almost certainly be revised.
Hammond said in a statement that he has the tools necessary to support the economy.
Three decades after Margaret Thatcher won a rebate from the EU, others are wondering whether they will still get a check from Brussels once the biggest beneficiary leaves.
The EU is likely to apply “pressure” on the region to “phase out” its current model when Britain leaves, according to the Danish government.
Denmark obtained an annual rebate of 130 million euros ($145 million) in 2013 after making it a condition for backing the bloc’s budget, while Sweden and the Netherlands have also secured cashback guarantees.
May Not for Turning (Inward)
Prime Minister Theresa May told the United Nations that the Brexit vote was not a decision to “turn inwards or walk away from any of our partners.”
Instead, she said it spelled out a desire by Britons to take back control of their country and highlighted that politicians were out of touch with their electorate.
U.K.’s May Speaks at UN: Somalia Military Aid, Brexit
Her comments came as Croatia became the latest eastern member of the EU to warn the U.K. against trying to “cherry pick” the best bits of EU membership. Yesterday, the Czech Republic’s EU envoy said there was “no way whatsoever” Britain could have its cake and eat it at the same time.
Today’s advice for May comes from campaign group Migration Watch, which recommends that the U.K. should limit the number of post-Brexit work permits for EU nationals to 30,000 a year.
On the Markets
While the pound has fallen to its lowest in a month, Julius Baer Group, the top currency forecaster in Bloomberg surveys, increased its year-end sterling forecast to $1.29, from $1.21.
Around Europe, equity indexes rose on Wednesday after the Bank of Japan took steps to control bond yields ahead of the Federal Reserve’s rate decision.
And Finally …
Are you a high-powered employee moving to London from Frankfurt, Paris or Milan? Prepare to live in a small apartment in Battersea rather than a four-bedroom home in Chelsea. For the first time, most companies are telling employees to consider one-bedroom flats on the fringes of London’s best districts, instead of larger family residences in the center of town.
You can blame Brexit, according to broker Douglas & Gordon, which says firms are unwilling to move whole families because of the economic uncertainty caused by the referendum.
Those disgruntled by the approach could always try to buy their own property. Savills predicts today that London’s luxury homes will slump 9 percent this year, the worst since 2008.