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I’ve avoided any commentary on Brexit in recent times, as it seemed to be going nowhere. Finally, just ten days before deadline, the House of Commons voted that a deal could be done … just not in the deadline given. So, it now looks like 31st January, 2020. Maybe.
The whole thing is a mess, as it has left the UK with three-and-a-half years of uncertain future, a battered currency and an economy stagnating. Nevertheless, whichever side of the fence you were on, it has got to the stage where we just want to Get Brexit Done, as the government’s slogan goes.
Watching the whole thing from afar – I don’t spend much time in Britain anymore – it looks like a country in transition. From where it’s come from to where it’s going, no one can predict – not even a futurist (of which I am not) – but it is clear that it is impacting lots of areas.
In a report a year ago, looking at economic forecasts from 14 reputable agencies, the conclusion is that:
The vast majority of the Brexit impact studies suggest the UK economy will grow more slowly after Brexit than it would do as a member of the EU, with those predictions ranging from a negligible cost to an 18% reduction in output in 2030 compared to a world in which the UK remained a member of the EU … only one study (produced by Economists for Free Trade) has predicted that Brexit will provide a significant boost to the UK economy. They forecast that UK national income would be at least 4% (and perhaps as much as 7%) larger if the UK leaves the EU and unilaterally adopts completely free trade than if the UK were to remain a member of the EU.
Well, so far not all of this has come true. The Guardian keeps a nice tracker of how Brexit has actually affected the UK economy so far, and find that inflation has been kept at bay, house prices are coming back, government borrowing is down and the trade deficit improved. These are good things. Unfortunately, this is countered by the fact that “analysts said Britain looked likely to remain in contraction in the third quarter of 2019, marking the second consecutive three-month period of decline in GDP: the technical definition of recession.”
In a new report from the CBI, this is confirmed:
A wave of corporate insolvencies, company profit warnings and a gloomy forecast of manufacturing investment over the next year has sparked concerns that Brexit uncertainty will weigh on the UK economy more than previously estimated. A survey by the business lobby group the Confederation of British Industry (CBI) found that the prospect of leaving the EU’s customs union and single market without a deal had led a majority of factory owners to cut back investment for the coming year.
What about the future?
Well, hard to say. The BBC notes that in the latest round of Parliamentary debate, there is no economic assessment of the impact of this deal on the UK economy:
There are two reasons why there is no economic impact assessment being published. First, it would take longer than a few days to do one. And second, because the assessment would almost certainly show that the medium term trade off for the UK is negative for growth.
You could of course read the government’s view, which says that “the UK economy would grow in all Brexit scenarios considered, just at different speeds”. Of course it will (they say).
For the City and London, many have said it’s no big deal, but I think it is. Ireland is benefiting from US banking relocations, as are Paris and Frankfurt. According to Ernst & Young, “City financial firms have so far committed to move at least 7,000 jobs and £1 trillion of assets out of the UK to prepare for Brexit, with the true cost likely to be higher. Brexit has also cost firms £4 billion as they have moved staff, taken out legal advice and implemented contingency plans.”
For FinTech, I covered this in-depth during this year’s Innovate Finance meeting in March, which concluded it will not harm the outlook for the future. Certainly, the news that London just beat New York for FinTech start-ups, and has now overtaken San Francisco for unicorns, implies this is true. After all, the UK does have one of the most favourable regulatory and language environments for most. This combined with the talent pool, adjacent industries and co-location all remain advantageous to the future. If you want more views on this, Coin Telegraph recently asked a range of industry players their views and is worth a read.
Meanwhile, the overall long-term view? Who knows? I guess, like Boris, I just wish we could Get Brexit Done, move on and get on with the long-term. Seems to be the view of most these days.
Related: The Two Big Issues Bank CEOs Have with FinTech