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Hard Brexit 'not the bogeyman' for UK business

January 13, 2017 10:10 AM
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Companies 'will cope' even if Britain leaves EU with no trade deal, Fitch Ratings says

A hard Brexit will not "be the bogeyman that causes everything to fall over" in the UK economy, Fitch Ratings says.

Officials at the US agency dismissed fears that leaving the single market will cause businesses to fail and send unemployment soaring, saying "businesses would cope even if Britain did not secure a transition deal with Brussels and fell back on World Trade Organisation (WTO) rules", reports the Daily Telegraph.

Alex Griffiths, group credit officer at Fitch, said: "We've not seen any sector where Brexit will be the bogeyman that causes everything to fall over.

"As soon as you look at trade, and global supply chains, for these companies there is going to be a big impact if we have a hard Brexit will tariffs going up. There will be a lot of shuffling around to do, but ultimately the companies will cope."

Most economists argue that a soft Brexit, which would require free movement for EU workers in return for membership of the single market, would be the best option for UK businesses.

They also warn the "hardest" form of Brexit – leaving the EU with no deal and falling back on WTO rules – would probably mean tariffs of around ten per cent being placed on most goods, hurting UK exporters.

Leaving the single market is also expected to affect passporting rules for the financial services sector, with City grandees warning more than 200,000 jobs are at risk.

However, writing in the Financial Times, Martin Wolf argues that given Theresa May's determination to take full control of immigration, a hard Brexit is now inevitable.

He says: "The single market option is dead, even as a transitional arrangement."

He adds that some mitigation can be found for exporters by a deal that would see the UK stay in the EU customs union, or through a bespoke arrangement that achieved the same tariff-free treatment of goods for particular sectors.

But he says this would still be "costly" and that the economy would also be hit by a squeeze on purchasing power resulting from a slump in the pound.

"The direction of travel is sadly clear," Wolf concludes. "To many, that direction remains highly unwelcome. It is not welcome to me. But it is clearly the reality."

Theresa May's office has distanced itself from reports the government is considering a £1,000-a-year levy on every skilled worker from the EU recruited in the UK after Brexit.

Immigration minister Robert Goodwill told peers yesterday the government was "seriously considering" the move in a bid to "help British workers who feel they are overlooked" and bring down migration numbers.

He added that companies were relying too much on migrants from outside Britain.

However, No 10 played down his comments, saying they may have been "misinterpreted". A Downing Street spokesman told Sky News the idea is "not on the agenda".

A Home Office spokeswoman said the department was considering "a whole range of options".

The move would be an extension of the immigration skills levy for non-EU citizens which comes into force in April. The £1,000 fee, which will be paid by employers, is designed to encourage companies to "train our own people" instead of relying on foreign labour, says the Daily Telegraph.

A similar levy for EU workers would put the government on "a collision course with business leaders, who have already warned that applying the policy to non-EU migrants could damage growth", says the Telegraph.

Guy Verhofstadt, chief Brexit negotiator at the European Parliament, tweeted the idea was "shocking".

Goodwill also gave a "strong indication" that a seasonal agricultural workers scheme, "under which tens of thousands of people could work… in low-skilled roles for less than six months", could be introduced after Brexit without counting towards the net migration target, says The Guardian.

There have already been warnings that the number of fruit and vegetable pickers coming to the UK from the continent has dropped markedly since the referendum, leaving tons of produce unpicked.

Farmers unions and others warn the problem will get worse without a dedicated scheme to allow employers to bring in thousands of workers.

City bosses have called for a three-year delay before a new regulatory regime is brought into force following Brexit.

Theresa May has said she will trigger Article 50 by the end of March, meaning the UK will leave the EU in early 2019.

Speaking before the Treasury select committee yesterday, Xavier Rolet, chief executive of the London Stock Exchange (LSE), told MPs he wanted a guarantee that the current trading rules would not change for five years after the start of negotiations, which would "give a three-year breathing space after Brexit", says The Times.

His call was echoed by HSBC chairman Douglas Flint, who called for standstill arrangements to be in place for "two to three years" to give time to adjust.

Without such reassurance, it appears jobs could be moved out of London pre-emptively - Flint restated that HSBC could transfer 1,000 jobs to Paris and eventually more to Ireland or the Netherlands.

Rolet, meanwhile, said as many as 232,000 City jobs could ultimately be at risk.

It has been reported that global banks are performing due diligence on moving to the continent and could make decisions to do so in the next six months.

There are widespread fears that the government's drive to take control of immigration will mean the UK is forced to leave the single market, forfeiting the right of financial firms to operate freely across the continent. In particular, that would threaten the already-contentious status of the City as the main hub for euro-denominated transactions.

The government insists it can strike a bespoke deal with the EU to enable financial firms to continue trading across Europe as they do now, but it has given no detail on its negotiation plans.

Consequently, companies have called for an interim deal to guarantee current rules will continue for an extended period. This will also soften the "cliff-edge" nature of an abrupt change when Brexit finally happens.

Rolet and Flint, together with Elizabeth Corley of Allianz Global Investors, also called for clarity on a "transition arrangement" in the next eight to 12 weeks, says The Independent.

Liam Fox's claim that the UK has secured £16.3bn of inward investment since the Brexit vote has come under scrutiny after it emerged many projects had been announced long before the EU referendum.

"Fox said that his Department for International Trade had brought in billions of investment in the past five months across sectors including property development, infrastructure and renewable energy," says The Times.

The pro-Brexit Cabinet minister was countering criticism his department will spend the next two years on the sidelines while the UK negotiates its exit from the EU, during which time it cannot sign its own trade deals.

However, the Financial Times says its own analysis shows a number of the case studies presented to support the claims actually relate to "projects announced years ago".

It cites a commitment by Dong Energy of Denmark to invest £60m in a renewable energy scheme in Cheshire, saying: "Dong announced the project in 2015 and gained planning permission in February 2016."

The paper also highlights "a joint venture between Wheelabrator Technologies and SSE to regenerate the former Ferrybridge Power Station in West Yorkshire", which was "first announced in 2012".

Fox also announced a £650m investment by MGT Power in a renewable energy plant in Teesside next year, but the plans were "first revealed" as long ago as 2009 and recently received backing from Macquarie Bank, says the FT.

There were some projects that had not been previously announced, such as "a £100m investment by Peak Resources, an Australian company, in Tees Valley and 100 new jobs by a digital sports and media company called Perform Group in Leeds".

A £2.5bn co-investment involving China's CNBM in new modular homes was also a new announcement, effectively upping a previous pledge that the company would back a £1bn scheme.

A spokesperson for the Department for International Trade said the case studies were "just examples" of why inward investment is important and most did not count towards the £16bn figure, details of which remain confidential.

Labour MP Chris Leslie, a supporter of the Open Britain campaign, said: "The British people are not going to be fooled by Liam Fox's list of meaningless anecdotes."

Sterling fell to its lowest level since October this morning after Theresa May gave "her strongest hint yet that the UK will leave the EU single market", says Sky News.

However, this boosted the FTSE 100, which relies heavily on foreign earnings, to a new record high of 7,218, a 0.1 per cent rise.

The slide was sparked by the Prime Minister's televised interview with Sky News yesterday, in which she responded to criticism from former EU ambassador Sir Ivan Rogers.

May denied the diplomat's claims that the government had "muddled thinking" on Brexit, saying she will set out her negotiation objectives in the coming weeks.

She also reasserted that the UK will regain full control over immigration and refuted widespread claims this will result in a massive hit to trade because it will cost the UK its place in the EU single market.

European leaders have consistently said the UK will have to accept freedom of movement for EU workers in order to stay a member of the single market. When markets deem single market access is under threat, the pound is sold off.

May added: "We also, as part of that Brexit deal, will be working to get the best possible deal in the trading relationship with the European Union.

"Anybody who looks at this question of free movement and trade as a sort of zero-sum game is approaching it in the wrong way."

The government hopes any drop in trade from the EU will be cushioned by a boost in trade with other global countries.

"The FX market shares this view and as a result, sterling has come under pressure again this morning."


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