Though it has long since been clear that the government would struggle to get the deal through parliament, the week’s developments have been such that analyses of Tuesday’s Commons vote now focus mainly on how large May’s defeat will be and how she is most likely to respond. On Wednesday, J.P. Morgan announced that they had assigned a probability of 40% to Brexit not happening at all.
Announcements of capital flight have continued at last week’s frightening rate. The FCA warned banks on Monday not to move their business out of the UK ahead of the withdrawal process. The watchdog sent letters to five major banks, including Bank of America Merrill Lynch, imploring them to focus on preparatory efforts for post-Brexit London and to limit the number of clients transferred abroad. The letters followed last week’s news that more and more banks are looking to move large numbers of clients and employees out of London. BAML confirmed that it had completed the transfer of its European hub from London to Dublin. Park Square Capital, a significant lender to private equity in Europe, has just opened an office in Paris, with their MD, Robin Doumar, stating that the firm were now being “very selective” in what they do in the UK as a result of Brexit. It was reported on Tuesday that the High Court has approved Royal & Sun Alliance’s request to move its European insurance business to Luxembourg. Major announcements could continue for the foreseeable, with Bloomberg reporting earlier in the week that up to 50 financial firms had applied for Dutch banking and markets licences. The songs of exodus echo beyond the Square Mile, of course: Juan Bossicard, the president of the Microsoft Innovation Center’s Executive Committee in Brussels, claims that 3,500 tech jobs have moved to Brussels from the UK and that he expects “far more to come after Brexit officially happens.”
The pound’s jitters continue, as anticipated. Sterling bounced a full percentage point against the dollar after the legal advisor for the EU’s top court suggested that the UK could revoke Article 50 without the agreement of other EU countries. The announcement came in light of the case put forward to the Court of Justice of the European Union (CJEU) by a cross-party group of Scottish politicians to determine whether Article 50 could be unilaterally revoked before March 29th’s Brexit deadline. Goldman Sachs expect that May’s deal will be rejected next week and that the pound will drop by 1-2% in the immediate aftermath of the vote. However, they’re anticipating that the deal will make it through the Commons in a second vote in January, and that the pound will then climb all the way up to $1.34. The full ruling will arrive in the coming days. Sterling was sitting at $1.27 on Sunday evening.
Over the course of the last week we have highlighted the mounting concern that UK companies are failing to make adequate preparations for Brexit. A report produced by the Bank of England’s regional agents suggests that just under a third of companies have taken significant steps towards readying themselves for the withdrawal process. Mark Carney drew heavily on the report in his appearance in front of the Treasury select committee on Tuesday morning. The big headline from the committee meeting was Carney’s forecast that the country’s food bill could rise by 10%, should we face a worst-case scenario, owing to a combination of a weakened pound, the imposition of tariffs, and increased border costs. Carney also emphasised that the UK’s ports were not ready for trading under World Trade Organisation (WTO) rules, as would be effected in a no-deal Brexit.
This is not a full summary of the week’s reporting on the economic impact of Brexit. For comprehensive coverage, please scroll through our homepage.