Brexit: Weekly Update

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Posted on September 12, 2016

Brexit means Brexit?
As the UK Government returns to business after the summer break, the main task continues to be Brexit despite the wish of many for it to simply go away. And Brexit means Brexit. The problem is no one seems to know what Brexit means so far. There are some very early signs emerging, but for the moment, the details of Brexit remains vague. The UK has entered “a period of phoney war” when the country knows something will happen, but is not sure what it is.
Before the summer break, ministers were tasked with coming up with their own ideas. This has served two purposes for the new Prime Minister. Firstly, Mrs. May will get a clearer idea of what room she has within government for her negotiating strategy and what support she will get and who she will need to keep in line. Secondly, blue skies thinking has allowed her to consider all possible outcomes as she formulates her Brexit strategy. She is starting to articulate some early thinking, including rejecting the idea of diverting the money the UK gives to the EU to the NHS, as well as the idea of a points-based system for immigration. Rejection of the points-based system has already sparked a backlash from Brexiters who see this as one of the main campaign commitments on immigration. However, May was the one who cancelled the previous points-based system, brought in by the Blair government, when she served as Home Secretary.

The chief Brexit Minister, David Davis, an arch Eurosceptic himself, has now officially flip-flopped on the matter of the EU single market. Last week, he argued it was in the UK’s best interests to remain part of the single market, but this morning, he said that it’s “very improbable” the UK will remain a member of the single market if the country is to regain control of its borders. May warned her Minister against “laying all the cards on the table” on whether the UK will stay in or out of the single market, noting she will negotiate the best deal for the UK on trade and investment.

How this will be accomplished is a mystery, as most voices within EU member countries have steadfastly refused to de-link free movement of people with access to the single market. On the flip side, there are now voices in Europe emerging, including the President of the European Council, who are saying the EU is close to being “full up” with migrants, making the future of immigration within and into the EU an open question.

In preparation for the potential de-linking of the British economy from the single market, many inward investors, and indeed UK companies including Lloyds of London whose market is the EU, are considering whether they may need to move all or part of their investment elsewhere. Dublin is making a big pitch for financial services. Given Dublin is situated in the same timezone as London, is English-speaking, has direct flights to North America, is within the Eurozone, and benefits from a low corporate tax base, the expectation from the Irish Government is that Ireland as a whole could benefit greatly from Brexit.

The G20 meeting in China has given the new PM some salutary messages too. The Japanese have clearly stated that their companies are likely to move lock, stock, and barrel from the UK should the UK leave the single market. President Obama has also reiterated the clear message that the UK won’t be at the front of the queue for trade deals as the US has other fish to fry, not least resuscitating the Transatlantic Trade and Investment Partnership (TTIP). Having always viewed the UK within the EU as a pillar of European security, the US is still getting used to the idea of a UK outside of the EU. The Italians have also told the PM to “get on with it”, but this is in part due to their own domestic problems, including a referendum in October which could see the end of the Renzi government and their banking crisis.

All considered, Mrs. May has a difficult time ahead and whilst she is no doubt still in her “honeymoon phase”, she leads a thin parliamentary majority, a divided Cabinet, a divided party and a divided country. There are some major issues to deal with and significant decisions to take, not least the issues of striking junior doctors, a third runway at Heathrow, and Chinese investment in the UK’s nuclear power industry. Expansion at Heathrow will be particularly contentious as the decision has now been deferred over four years.

The PM will take some comfort in a few positive developments over the summer break, mainly on the short-term economic outlook. Sterling has rebounded slightly, the stock market remains robust, manufacturing has expanded (mainly due to the weaker pound) and the services sector has rebounded too. So while there will still be ‘difficult times ahead’ for the economy, today’s reality appears a far cry from the Remainers predictions of a dramatic UK recession.

Navigator's Brexit Response Team

If you have any questions on the implications of Brexit and its implications for your organization, please reach out to Navigator's Brexit Response Team.

If you require immediate assistance, call our crisis response hotline at:

Press 3 for the on-call crisis manager

1 (877) 431-9721

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