Brexit consequences

[Spinflight]

Can't find the old one, despite a search. Hence a year on...

I started it to compare the doom and gloom predictions from people who should know better, especially the treasury, to actual observable facts.

Thus far the treasury predicted our borrowing costs would soar by over 130 points. In fact they're down about 100.

No trade deals possible before (I forget the date they said, was far in the future though) compared to actual negotiations beginning with the USA later this month with the president firmly behind them. Canada, New Zealand, Australia, India, South Korea and several others I've forgotten have shown a great desire for a deal quickly.

Ftse 100 and 250 are well up, just shy of 7500.

Best of all from a macro economic perspective is inflation touching 3%. When you are £1800 billion in debt rating that away with inflation is far preferable to actually paying it off.

Growth has dropped a bit, though nowhere near the instant recession that was predicted. Bit early to say though this is likely due to the referendum.

External investment is actually nicely up, with several major companies announcing various large commitments.

Things could be rosier, though it would be a struggle to describe them generally as bad, quite contrary to 'informed' opinions. Even the oecd recently ate their pre referendum words.

Oh, so only losing 25% of the City's business is OK then

In May 2017, new available jobs in London’s financial sector fell by 16% relative to the same period the previous year. The announcements of actual or planned reassignments add up to a potential 17,000 jobs leaving London, out of a total of 94,000 London-based positions currently accounted for by the dozen largest investment banks.

The biggest winner of the Brexit vote among European financial centres seems to be Frankfurt. Seven of the 12 largest investment banks with significant operations in London plan opening an office or moving their operations to Frankfurt. (The 12 largest investment banks with significant operations in London include Barclays, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan, Lloyds, Nomura, Standard Chartered and UBS.)

Three of the remaining global banks look to expand in Dublin, and one to Paris. In May, JP Morgan and Standard Chartered became the latest global banks to outline plans for their European operations after Brexit. JP Morgan, for example, has started moving analysts to its Baltimore and New York office, and just bought a Dublin office for 1,000 employees. Standard Chartered decided on Frankfurt, lured by proximity to the European banking regulator. Deutsche Bank has warned that up to 4,000 London-based jobs could be moved to Frankfurt and other locations in the European Union as a result of Brexit, though it has yet to announce concrete plans.

blogs.lse.ac.uk/brexit/2017/06/07/investment-banks-are-already-leaving-london-other-jobs-will-follow/

"Oh, so only losing 25% of the City's business is OK then"

I did not say that, but if the Eurozone in an attempt to get 'the City' based in Europe has to settle for 20% of the City business/profits/tax receipts (about £60 billion plus a year), so be it, but it may damage Europe if the current City's abilities to trade/hedge huge risk, is diminished.

But the City gives complex solutions daily to countries and companies, so they are good ad adapting, as generally speaking I believe it was changes in America that saw the Euro Dollar (dollars outside the U.S. Federal Reserve jurisdiction mainly paid out to the Middle East for oil needing to be recycled) that saw the growth of investment banking in European centres and Switzerland - then other European changes that saw all the Investment Banks move and centre their operations here, from the mid 1970s on.

But when 'adapting', like plans to split our banks after 2008, it could dramatically increase the costs of capital, as will need to be increased if over 2 centres and 2 regulatory bodies - which with good will could be sorted - but they don't want to be 'forced' to do anything, as a result of both sides posturing.

"Finance firms need freedom to choose location after Brexit

You can obviously google, but you still come up with word soup...

Well not everyone knows much about how the City works, as it wasn't that long ago (after the crash) the populist opinion was we should kick out investment banking b'stards and their tax (receipts), coz wot they did - now they are a national treasure, how 'stuff' changes.

Put it another way, there are around 360,000 employees in, and servicing the main investment Bank, the 100-200 other international banks, the fund managers and insurance e.g. Lloyds Underwriters.

But for every 'revenue earner', there are several direct support staff in a bank including risk control , others in departments like payroll and H.R.- and outside a small army of legal, accounting and other services up to the v. important coffee shops.

My point being, there is NOWHERE in Europe that can be a home to the whole industry, so companies will put as few as they have to 'over there', to satisfy their regulatory requirements, and book everything else through London.

Yes, but a lot of us do know about the industry unlike you and we know that many of ancillary jobs will also be at risk when a large chunk of the business of the city leaves.

You are right, there is nowhere else in Europe that is as good at the whole shebang as London. Which is why it's such a shame that the Brexiteers seem so desperate to chop it up!

Motheroffourdragons

"Because why would you want 2 teams when one will do"

Excuse me, I didn't explain that very well.

Within an Investment Bank, its usual to have a Bond, Equity, Foreign Exchange, Commodity, and Foreign Exchange department - and within each of them, there will usually be regional teams or other divisions.

In the Bond (or Fixed Income Division) there will also be the Origination and Syndicate Department that put small groups of Investment Banks together to underwrite huge bond issues, and the largest group of fund mangers in Europe is here, they want to buy those new bond issues - so despite technology, there are still many face-to-face meetings every day in the City.

Europe in all those businesses is just one part of all that, and as I've just mentioned, the size of the City cannot be replicated anywhere else, so they have to put the operations into Europe they are obliged to, but due to the scattering of banks across the Eurozone, and major fund managers here running hundreds of $billion of funds - Europe will pay an efficiency price for their new tax revenues. IMO

CardinalSin

Excuse me again, I didn't know I was in the presents of a City guru, as if you had some knowledge, you wouldn't have called my post 'soup' - but I guess you were just being rude.

So again, in addition to our air smelling sweeter in the EU, what may or may not ending up to the City is another reason to stay attached to a declining behemoth, whose 'model' is the transfer of funds from the larger nationals to the smaller? Got it.

It was obviously the reliance on City and deregulated High Street banks and taking their eye off the manufacturing ball, that saw the UK lose 2 million of the 4.5 million jobs that we had in 1997 by 2010 - so a good opportunity to reweight our economy from financial services to the EU, back to 'making things'.

Not though it seems anyone noticed back then, strange when kicking up a fuss for tens of thousands City jobs now - I reiterate, how 'stuff' changes.

...correction; ...'from larger nations to the smaller'.

Just a random couple of thoughts......(but banking really isnt my area of expertise , a rare occurance I know ) but when you look at how Estonia, and the genius e-residency scheme theyve come up with, has circumvented access to the EU through the back door, are we really saying that 27 nations will act uniformly and unanimously regards the finance sector? Brussels jumps up and down alot shouting 'its the law', then up pops the eastern bloc, or the BBC pay department, or a need to break that little law to bail out Italy again........

My other random thought is what golden goose is the EU exactly dangling here? The 'single market' theyre selling in financial services, is about to shrink dramatically, considering I think that the UK are the only nation that has released private pensions from 'annuity' type restrictions. Are the EU about to give say a 20% reduction in club membership fees to its existing members, to reflect the somewhat smaller single market access theyre selling? Just random thoughts but no, Im not losing sleep over the bankers just at the moment.

Id be a supporter of an IMF union, and considering the balls up the EU are making in the eurozone and the fact theyve already opened finance sector access to non-eu nations in various financial services areas, I think the decision will be taken out of their hands anyway. (Im on an early by the way, before the conspiracists get excited at my 'posting' time)

Just backing up a bit to Spins earlier post (youre so right about manufacturing though Thea)....

Spin, similar reasons Tanzania pulled out of the EU trade deal. When the penny drops, that 'free trade' isnt exactly free trade, the whole thing unravels. Taking Tanzania as a topical example, in a country that is almost solely reliant on its agricultural products, to sign up for a free trade deal (because the EU have promised open access to the largest single market in the world..whoopee!) that very 'market' then becomes the hunter. Their own agricutural production gets undercut because of a/ EU technology, quantity, suppressed low skilled wages, investment but also b/ because the EU subsidise their own agricultural production. Oh and if that wasnt enough, lets throw a few new regs at them just to be sure we see them off.

Tanzania find that not only were they unable to sell a single ounce of corn, into this land of milk and honey, but they lost pretty much all of their own agricultural industry in the process. When last week they were able to sell next door to Kenya, this week the French are.

Free trade is not free trade. Not when you stack the deck through 'state' subsidies or currency controlled financing.

Misti, why hasnt your UK manufacturer relocated to say Poland? Im not being goady, I really couldnt build a business case for any UK manufacturing to remain in the UK whilst in the EU. (Except maybe pharmaceuticals) Everything from the cost of land for premises, to the cost of local labour, raw materials etc says manufacturing should be done elsewhere.
This was one reason for my vote. Not that you are here, (which is good) but the fact that economically, your employer shouldnt be. They should have followed Cadburys.

If the great and the good, had shared the spoils of so called 'free trade' with those who paid the price, then none of us would be having these discussions. But the EU isnt set up to do that. It isnt some altruistic charitable organisation. As with my Tanzania example above, its set up for the benefit of the powerful few who wouldnt dream of entering into a trade relationship without it being highly profitable in the first place.
It appears that Tanzania have a President who wishes to look after his peoples interests. Im sure he could have personally made a few billion if hed just signed that damn paper.

www.nytimes.com/2017/07/21/business/dealbook/bank-of-america-dublin-ireland-brexit.html

Speaking of banks, financial industry, Brexit, etc.

so a good opportunity to reweight our economy from financial services to the EU, back to 'making things'.

The problem is that any brexit that involved leaving the SM and the EU customs union is also as bad, if not worse, for companies that "make things".

I haven't worked in the city since 1997 so I can't make informed comment on the ultimate impact from brexit there - though as a general comment I would say that no one believes that all or even most City jobs will move away. But several thousands or perhaps tens of thousands will (based on announcements already made) and this will have an impact, because these aren't macjobs but senior individuals who pay lots of tax and support many downstream jobs.

I do know about manufacturing though and in particular about the auto, chemicals and pharma industries, via my own job and DH's. Companies are being very reticient about it, because certainly before the election anyone who stuck their head above the parapet jeopardised their access to government (things a bit better now but companies still very reluctant to discuss their plans in public). But they all have brexit committees, are mostly delaying new investment in the UK, and in some cases (including my employer) are quietly proceeding with new EU plants. They would be doing more, but my strong impression is that senior management in big companies still don't really believe that a hard brexit will happen - or indeed, in some cases, that any brexit will happen.

Why can't these unpatriotic companies just sell to the US, or China? Well, in the case of big exporters, they already do (this is a point that Brexiters seem to miss). If they could sell more, they already would. But the goods they sell in the US and China are often made locally, for supply chain, market access and cost reasons.

This is not "British manufacturers being unpatriotic" but a simple function of the exponential increase in the difficulty of serving markets as they become more physically distant, especially where there are trade barriers or regulatory complexity. It's not a particular feature of the UK market either: for example, large Chinese industrial companies are now beginning to invest in plants elsewhere in Asia and in the US, because it makes sense to locate your plants in places that are closer to your customers, for practical and cost reasons, and preferably inside trading blocs for improved market access.

There are products to which this doesn't apply, typically high value products that have a specific technical or marketing advantage - to take the car industry as an example, the premium German brands and JLR do well in China, although increasingly all big car companies have some local production too. But mass market vehicles will never be shipped to China in large numbers from the UK, or indeed anywhere else in Europe.

Why not go the whole hog and revert to barter...

'Making things' is an absurd direction to take for an economy that rakes in a huge income from export of non-financial services.

publications.parliament.uk/pa/ld201617/ldselect/ldeucom/135/13513.htm#_idTextAnchor172
House of Lords Select Committee on the EU publication.
"Brexit: trade in non-financial services"
'Summary of conclusions and recommendations'

Read and weep.

So if we all just staycation that sorts the BoP to the extent of £11 bn. Good to know

So .... brexiteer starts a thread about consequences, gets some, discounts them all, spends whole thread with friends of a very similar opinion and posting style posting huge walls of impenetrable guff about "remoaners".
Seriously, is there some kind of brexiteer school where they tell you to post massive waffle with underlining to make your case? Weird and very out if sync with posting elsewhere on MN

Yes, it it would be so easy to just go back to "making things2, what with all our natural resources and all

While we're about it, Cornwall could go back to copper mining, and we could send urchins up chimneys...

Particularly when they type word soup which they've either googled or been told what to type, and fail to understand why it makes no sense...

Mistigri

I realise that we DO sell stuff abroad already, I realise that not just because we are leaving the EU the UK is the post politically unstable for over 40-years, I realise that will affect our businesses until the terms of Brexit is sorted – but the near halving of the UK manufacturing share of our economy, from around 21% to 11% over 13-years, made things far worse.

And it didn’t need to happen, as I say re the EU, businesses can compete DESPITE a government, not BECAUSE of a government.

Back in 2005, when the first 1 million manufacturing jobs went, Business organisations blamed red tape, rising taxes, a strong pound and the burgeoning public sector for the wave of redundancies. They urged Mr Brown to use his Budget to slash costs facing industry and do more to boost skills.

A big part of the new regulation came from the governments newly formed financial tripartite regulator, the Financial Service Authority (FSA) in charge of regulating every company from a small corner garage car warranty, to highly complex City Hedge Funds – a brief that was to prove far too large in breadth and complexity, so they screwed up, and were closed down with new regulatory replacements – with the Bank of England back in overall charge of stopping financial excesses etc.

And while Blair was agreeing it had become so burdensome he tried to do something about it “What Blair really thinks about the FSA” if a government either does NOT ideologically understand business and/or has other priorities – as confirmed when Darling in 2010 put up National Insurance to companies and workers during the worst recession in 80-years rather than cut back the increased size of the State – this will always have a profound effect on the UKs ability to trade, and pay our way in the world, including funding services we want to increase here.

P.S. The process of moving production etc to other countries called ‘hollowing out’ you cite happening by the Chinese, has been going on for decades, especially by the Japanese in Far East.

And in the UK our companies are the largest investor, and provider of I believe 1 million jobs in the U.S., so no one needs to teach the UK companies how to ‘suck eggs’ – but for UK companies consolidating their global earnings at their Head Office back home - a government can put too much of a burden on the private sector/businesses, in or out of the EU.

I agree that Darling should not have put up Employers NI, but then the next Tory government put it up again!

CardinalSin

” Yes, it it would be so easy to just go back to "making things2, what with all our natural resources and all”

” Particularly when they type word soup which they've either googled or been told what to type, and fail to understand why it makes no sense...”

I’m so sorry to disappoint the ‘UK naysayers’ and those showing their own ignorance while trying to discredit my opinions – I look to positively inform, not just quote big state, more spending anti government mantras – apparently even the village idiot could manage WITHOUT Google.

July 2013; “Positive news for UK manufacturing as reshoring gathers pace”

“British manufacturers are to hire more staff to cope with an expected surge in demand caused by a “reshoring” of production to the UK, according to a new report.”

“Almost a third (32 per cent) of senior decision makers from the British manufacturing industry who currently use overseas suppliers say their business plans to source more components from UK companies over the next five years.”

“Rising costs overseas (59 per cent), and simpler transport and logistics (51 per cent), were amongst the most widely cited factors by the 41 percent of respondents who reported that the UK is becoming more attractive as a manufacturing destination compared with locations abroad.”

So once, trying to repair the previous damage done, that PAYS towards the £794 billion any government in power would currently need to fund paying for what we CURRENTLY have.

CardinalSin

"I agree that Darling should not have put up Employers NI, but then the next Tory government put it up again!"

My recollection that Osborne CANCELLED most or all of those NI contribution rises that bravely were to come in AFTER the 2010 General Election, as well as previous Fuel Duty hikes.

Google it, and find out, rather than maybe relying on a 'selective' memory'.

www.bytestart.co.uk/national-insurance-rates-2011-2012.html