Actual economic effects cont...

[ManonLescaut]

Telegraph: Britain could be up to 70 billion worse off if it leaves the single market IFS warns

The respected economic think tank said that Britain could enjoy an extra 4 per cent in national income if it remains in the single market, equivalent to two years worth of growth.

The report claims that while leaving the EU will free the UK from an estimated £8 billion a year of budget contributions, the loss of trade from Brexit could hit tax receipts by a larger amount.

It found new trade deals would be unlikely to make up for lost EU trade, which accounts for 44 per cent of British exports and 39 per cent of service exports.

Telegraph: Treasury looks at quitting the single market

Officials say the talks have revealed a willingness among some top figures to scrap passporting despite early calls to stay in the single market from some quarters...

Mr Boleat cast doubt over the UK’s ability to secure a Norway-style deal to remain in the single market. He said accepting free movement of people and paying large sums to Brussels while accepting its rules would not be politically acceptable.

The BBA wants the UK to leave the single market but retain unimpeded access to EU markets.

Yep - big talk of tech firms and individuals moving to Berlin and the like, although little actual data. Berlin is very very keen to steal a march on London www.bbc.co.uk/news/technology-37417764

Anyway, Bank of England agents' data out today. Investment and employment intentions not looking good, consumers are JUST FINE ALL IS WELL, but - uh oh - "There were signs of [materials and imported goods] prices starting to respond to the fall in sterling ...There was little evidence of pass‑through to retail pricing as yet, but there were signs that would begin over the coming months, with the extent of the depreciation helping persuade some retailers of the need for higher prices."

www.bankofengland.co.uk/publications/Documents/agentssummary/2016/q3.pdf

Actually - this isn't a great thing, not replacing leavers is a headcount reduction without the expense of redundancies:

"Among professional and financial services firms, hiring activity had slowed following the EU referendum and leavers were being replaced only where the business case was strong"

I'd expect a good chunk of professional services/finance to be making loadsamoney from the disruption following the vote (and leading up to whatever 'Brexit' we get), so this is a rather anxious picture.

Our overseas HR branches have put UK applicants for positions into Tier2 visa requirements ( was Tier1 ) owning to uncertainty about future requirements. So a UK applicant not gets 1 point less in their HR process.

And that ladies and gentlemen, its Brexit in action.

so this is a rather anxious picture

It's anecdotal of course but there is also a hiring freeze at my employer, despite the fact that we are a big exporter so sterling devaluation has been good news for us this year.

The Society of Motor Manufacturers and Traders is worried. From the BBC website's Business Live section - video at link www.bbc.co.uk/news/live/business-37454431

"The UK motor industry is making a pitch for post-Brexit trade at an event in Paris today ahead of the city's car show.

Mike Hawes of the Society of Motor Manufacturers and Traders told BBC business editor Simon Jack that the car industry could be headed for a crash if the UK leaves the single market.

"Don't be blinded by the good news that you're seeing not just around our sector but around business in general. We're very concerned that the future state of the automotive industry and the success could be jeopardised if we're not in the single market," Mr Hawes said.

In the first half of the year 57.3% of UK car exports - 502,647 cars - went to the European Union, followed by the US, which had 12.1% of exports."

That's interesting Patty, I think consumer confidence is reported as high right now, whereas business confidence is slumping noticeably. From the last week or so:

Scottish SME confidence at '5 year low' www.bbc.co.uk/news/uk-scotland-scotland-business-37439935
UK Business surveyed by Lloyds Bank at 4 year low www.theguardian.com/business/2016/sep/19/uk-business-confidence-at-four-year-low
UK financial services confidence (as surveyed by PwC/CBI) longest quarter on quarter drop since 2009 www.theguardian.com/business/2016/sep/26/brexit-anxiety-financial-services-sector-cbi-
Plus also the BoE agents' survey above.

I do wonder if consumers are expecting an inflationary jump, or if there is something else going on eyes recently acquired pile of books on EU, rise of Nazi party, world trade and how to learn foreign languages

Not exactly a story, but information nonetheless:

"UK is experiencing a sizable economic shock", and Bank of England likely to apply further stimulus (rate cut, further QE/bond buyback etc), as soon as November.

www.bloomberg.com/news/articles/2016-09-28/bank-of-england-s-shafik-sees-further-easing-likely-for-u-k

Capita have followed up on their half year announcement with a profit warning for the full year, with profits/revenues lower than expected and caused by "continued material delays in client decision making" following the Brexit vote. Shares are down 20%.

I missed this but Mitie (another significant outsourcer) gave profit warning earlier this month, with profits likely to be materially lower than expectations, in part due to clients delaying or cutting new project spend.

www.ft.com/content/fee8cc6c-860c-11e6-a29c-6e7d9515ad15

I guess this is a function of outsourcing business model - that you respond to client needs and take a bigger hit when times are bad.

Not that they are bad are they? Big share price falls though, for what could be temporary uncertainty.

£65 million a year (a candid) estimate of what Brexit will cost. Also 500 civil servants will have to be employed, according to a Government Brexit Report. The Report also alludes to the whole thing being an omnishambles.

So much for the Tories 'shrinking' the state

I heard we will be doing huge tremendous deals and we will be getting bored with winning.

Or was that just Trump again.

Toxic Trump is the king of outlandish statements and talking bollocks

The BBC website's 'Reality Check' section has an interesting little story today.

It says "Liam Fox cited some unusual examples of the UK's adventures in international trade as he set out his vision for a free-trading Britain, in a speech in Manchester on Thursday.

To illustrate his case, he said the UK had sold tea to China, wine to France and boomerangs to Australia."

It goes on to check whether this is true, and it is - up to a point.

Boomerangs - no figures for value of trade
Tea - "The UK's tea sales to China have grown substantially since the early 1990s, peaking at almost £1.2m worth in 2010. But that was dwarfed by the £18.2m of tea the UK bought from China in the same year."
Wine - The UK exports £46 million worth of wine to France, but the Wine and Spirit Trade Association estimates that less than 2% is English wine - about £940,000. The rest is imported in vast plastic bags and bottled in the UK for re-export, the largest plant being in Avonmouth. The biggest customer is Hong Kong and the second biggest France. So the UK doesn't make that much wine for export to France, it just repackages it. Oh, and what happens once we're out of the single market? If tariffs are imposed and make this trade uneconomic, I expect bottling plants in EU countries near suitable ports to expand or be established.

Fox has no grip on reality what so ever.

Liam Fox has looked at the details of trading under WTO rules when we leave the single market (I don't believe there's any if about it now). Putting a bit of a positive spin on it, but still has to admit it won't be easy.

From Reuters:
"Agreeing Britain's post-Brexit membership terms with the World Trade Organization will not be simple but should be done in a way that causes minimal disruption to global trade, trade minister Liam Fox said on Sunday.

Fox, a leading Brexit campaigner ahead of the June 23 referendum, said Britain did not need to re-apply to join the international trade body when it leaves the European Union as it was already "a full and founding member".

But as Britain is currently a member of the WTO through the EU, it will need to agree new membership terms, or schedules of tariffs, following Brexit and those terms will have to be agreed by all other WTO members.

"What we do need to have are the schedules, which are effectively our license to trade. That's what we are discussing at the present time," Fox said in an interview with the Huffington Post on the sidelines of the Conservative Party's annual conference in Birmingham, central England.

"We will want to see a position on WTO schedules adopted in a way that causes minimal disruption. That is not an entirely simple process, and we would never pretend that it is, but neither is it an insoluble riddle."

Before the referendum, WTO Director-General Roberto Azevedo said renegotiating Britain's relationship with the rest of the WTO could take years or decades."

Ahem. Pound at new 31 year low against US$.

Construction PMI data out later - manufacturing PMI was positive due to domestic demand (consumers are spending now) and slump in sterling giving advantage to exports. Construction PMI is 'expected' to be lower although how much of an informed expectation that is, I dunno.

Cost push inflation to come, in December/January.

Good to see the poor and disenfranchised were encouraged to vote for something that will benefit them.

Living standards across the country are about to fall.

House market rebounds.

Good!

How much of that is to do with lower interest rates though?

Indeed. Socking it to the elites and all that.

And on housing, how much is foreign investment taking advantage of the drop in sterling? In London certainly a nontrivial factor.

Actually, before I forget, there was a discussion here ages ago about the effect of the low(er) interest rate/higher inflation environment on investment, particularly pension funds. Investors will look for higher yielding assets with some protection from inflation: property assets fitting the bill nicely. Basically a BTL might seem a bloody good idea if you need somewhere to put your cash for 10 years.

I was just doing some calculations on this after seeing a Brexiteer on FB shouting about how the £4300 prediction was such a big lie;

Using google, the average UK household income in 2015 was £25700. The £ has lost 14% against the $ since the referendum, so in global terms the average household income is already worth £3598 less (based on 2015 figures, obviously). And we haven't even left yet. I think the £4300 figure is going to turn out to be quite an underestimate.

Can I join?

IMF has lowered 2017 forecast for UK growth (again, as the headline has it):
www.ft.com/content/4a08dd73-fbf1-33c6-8341-6572be64d68b

Association of British Insurers has called for a rethink on insurance regulation (the insurance industry has just gone live on EU wide "Solvency II" capital and risk regulation , it has taken at least 7 years of hideously expensive implementation and more work before even that)

www.ft.com/content/4c894fcc-8654-11e6-8897-2359a58ac7a5
This, translated, means that ABI is lobbying for UK insurers to hold less capital (than now, and than EU counterparts). This means they may be able to sell insurance products cheaper but on the flipside are less protected in times of turmoil like I don't know a massive economic instability through leaving the EU with obvious implications for consumer protection.

They are also rightly concerned that UK regulations, will likely need to remain 'equivalent' to EU-ex-UK ones, but the UK will not have a say in those EU regs.

OK, projected effects, and from a report commissioned by a lobbying group, but still backed up by reliable figures.

www.bbc.co.uk/news/business-37560471

"The financial industry could lose £38bn if the UK quits the single market, a report commissioned by a group lobbying on behalf of the City has said.

The report, commissioned by TheCityUK, also said up to 75,000 jobs could go.
...
The report, which was written by management consultancy Oliver Wyman, modelled several possible outcomes for the UK financial services industry after Brexit.

In one scenario, it said the UK might retain access to the European Economic Area on similar terms, meaning it would be able to continue trading across the bloc without the need for individual country licences.

This would cause less disruption, it said, costing the industry up to 4,000 jobs and £2bn of revenues a year.

However, another scenario would see the UK quit the bloc "without any regulatory equivalence".

This would cost the industry up to £20bn and 35,000 jobs, it said - although the "knock-on impact" on related business activities could cost a further £18bn and 40,000 jobs."

Aargh! That BBC report- in the name of balance they've offset the Oilver Woman report saying that hard Brexit might cause huge economic loss with a bloke from a pro-Brexit campaign group saying "nah mate, it's all going to be fine"

No mention of Oliver Wyman's assumptions or approach, or even a nicely laid out report of his own for anyone to have a good look at. Just some vague unreferenced statements from Kevin who is a professor and therefore requires no data to substantiate anything he says.

I might actually complain if I can find a button to do so.