Brexit Bulletin: The Economic Outlook Darkens – Bloomberg

Brexit Bulletin: The Economic Outlook Darkens – Bloomberg

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For evidence of how much the economy is starting to feel the bite of Brexit, look no further than the Bloomberg Brexit Barometer.

A custom-made index designed to show how employment, growth, inflation and uncertainty are performing as the split from the European Union nears, it plunged on Monday to 8 from 13.3.

The latest slide was the biggest percentage fall since November, and the index is now at a level unseen since the aftermath of the referendum.

Dan Hanson of Bloomberg Intelligence, who helped to design the gauge, said:

“The drop in the barometer is another indicator suggesting the economy is going through a soft patch. What’s more, uncertainty is likely to remain elevated and inflation has yet to peak so it will probably be some time before the outlook brightens.”

That scenario would pose a problem for Prime Minister Theresa May.

A softening economy would weaken her hand in the Brexit negotiations and risk sapping support for the divorce among voters. It would likely increase pressure on her to safeguard trade. Prioritising that, though, might force her backtrack on her ambitions of taking back control over immigration, law-making and the budget. 

Speaking at a Confederation of British Industry dinner last night, Chancellor of the Exchequer Philip Hammond called on businesses to help craft a “shared solution” to deliver a smooth Brexit.

The deteriorating economic mood was underscored by news that U.K. manufacturing slowed more than forecast in June. IHS Markit’s Purchasing Managers Index fell to a three-month low of 54.3, which is admittedly still above the 50 level that divides expansion from contraction. 

By contrast, euro-area manufacturing expanded at the strongest pace in over six years with its index climbing to 57.4. That too will complicate matters for May as it will reinforce the case that the EU’s economy is undergoing a revival just as the U.K. leaves.

Against such a backdrop, the pound fell for the first time in nine days versus the dollar.

Hammond Holds Line

Hammond also said last night that Britain must “hold our nerve” and keep public spending under control even as members of the Conservative-led government continued to signal austerity politics may be coming to end.

Philip Hammond

Photographer: Chris Ratcliffe/Bloomberg

Hours after a minister said that easing a long-standing and unpopular pay freeze on public jobs is “under active discussion,” Hammond said policy towards the 1 percent cap on public sector pay hadn’t changed.

But pressure is still mounting on the chancellor after seven years of belt-tightening and he acknowledged the public is “weary” of austerity. U.K. debt remains equivalent to about 90 percent of gross domestic product, though — one reason to maintain prudence.

Frankfurt Wins

The Frankfurt skyline.

Photographer: Krisztian Bocsi/Bloomberg

Sumitomo Mitsui became the latest banking giant to pick Frankfurt as its post-Brexit hub for the EU, following Standard Chartered and Nomura. Goldman Sachs and Morgan Stanley are considering a similar move.

“Frankfurt has become the leading candidate for bank operations leaving London,” said Hubertus Vaeth, managing director of Frankfurt Main Finance, a lobby organization. “Frankfurt and the whole region are reaping clear benefits.”

While the excitement is understandable, even backers of Frankfurt admit that the real impact will be limited, Bloomberg’s Steven Arons and Gavin Finch report on Tuesday.

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The Brexit relocation will probably be a trickle, not a torrent, with each bank moving a few hundred jobs at the most. The shifts won’t happen at once but gradually over time, said Oliver Wagner, managing director of the Association of Foreign Banks in Germany, which has been promoting Frankfurt. That’s barely enough to move the needle on the Global Financial Centres Index, a ranking of the world’s financial hubs. Frankfurt is a distant 23rd, behind Shenzhen, and barely edging out Seoul. London is first, before New York.

Brexit in Brief

  • Britain draws criticism from the EU for pulling out of a half-century old fishing pact
  • Civil service is witnessing a turf war over Brexit, the Financial Times reports
  • The U.K. wants to keep collaborating with the EU on the regulation of drugs after Brexit, the FT said
  • The EU and U.K. can clear the hurdle of how to treat citizens after Brexit, say the editors of Bloomberg View
  • 77% of more than 300 global respondents say U.K. government should have consulted with asset managers more before starting Brexit talks, consultancy MJ Hudson says
  • Brexit Minister Steve Baker said in 2010 that the EU “needs to be wholly torn down,” according to the Independent

And Finally…

Get ready for “Brexit — the Musical.”

Web site Legal Cheek reported that Chris Bryant, an EU law expert at Berwin Leighton Paisner, is launching his 70-minute, 20-song show at the Edinburgh Fringe Festival.

“I have been advising clients on the issues surrounding Brexit for the last two years and writing songs for most of my life,” Bryant told Legal Cheek. “It seemed obvious to put the two things together to pen a musical about Brexit. With the characters involved and the events that have occurred since last June, there’s so much fun to be had.”

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