Brexit Bulletin

Brexit Bulletin

304 Days to Go

Today in Brexit: While the Irish border and customs arrangements are the most pressing concerns, work on everything else needs to accelerate. And there’s a lot left.

The U.K. Parliament is in recess, but London has its homework to do. Brussels expects British negotiators to return next week with a clear plan about how the government proposes to solve the Irish border problem. The European Commission insists a backstop – the solution that will have to do until something better comes along – can’t be the government’s U.K.-wide customs arrangement with the European Union.

But amid all the talk about the Irish border and the endless customs union debate, it’s easy to forget there’s still a lot else that needs to be hashed out by October. The EU’s chief Brexit negotiator, Michel Barnier, used a speech in Portugal over the weekend to spell out the differences. The system for settling disputes – which the EU maintains must include a strong European Court of Justice role but which the U.K. wants to be run by joint political committee – also needs to be included in the final text of the Brexit treaty.

The details about the foundations of the future relationship – which includes trade, ddefenceagreements, financial-services arrangements and regulations for industries such as fishing – are supposed to be completed by October, too.

A senior EU official raised British hackles last week, accusing the U.K. of chasing “fantasy” ideas and failing to accept responsibility for the consequences of walking away. In a background briefing for reporters, given on the condition of anonymity, the official laid out areas of dispute. From the EU’s perspective, here’s where these stand:

  • Mutual recognition of standards and regulations in areas such as food safety and financial services
  • Security: The U.K. can’t stay in Europol or take part in the European Arrest Warrant system, the EU believes
  • Foreign policy: The EU is unlikely to comply with a U.K. request for a significant say in decision making
  • Galileo satellite navigation system: The U.K. can’t turn the program into a U.K.-EU joint project and have privileged access which could give it the right to turn the system off unilaterally, the EU says
  • Data protection: The EU is unlikely to allow the U.K. to have a bespoke agreement that would lead to the EU losing its autonomy over privacy rules

There’s much work to do over the summer to lay the plans for the full-scale negotiation on the two sides’ post-Brexit ties. “Time is running out,” Barnier warned on Saturday. “If we want to lay the foundation for our future relationship before the withdrawal of the U.K., we must accelerate.”

Ian Wishart

Today’s Must-Reads

  • The Financial Times’s Tony Barber argues there’s a fierce battle emerging over the future of the EU that’s been ignited by the crisis in Italy
  • Bloomberg Opinion’s Mohamed A. El-Erian says markets fear a populist backlash in the country

Brexit in Brief

Air Agreement | The U.K. is ready to agree to an “open skies” agreement with the U.S. this summer that will keep planes between both countries flying after Brexit, the Daily Telegraph reports, citing four unidentified sources. The newspaper also says the EU has moved to shut the door on British and other non-EU companies participating in the European Defense Industrial Development Program.

Carry On Spending | Britain will help to determine the EU’s 1 trillion-pound budget up to 2027 after European countries defied Brussels and invited British officials to take part in negotiations, the Times reports. The European Commission was opposed to the plan devised by individual member states, the newspaper says.

Scotland in Brussels | Scottish First Minister Nicola Sturgeon reiterated her goal for the U.K. to remain in the customs union and single market in a meeting with Michel Barnier in Brussels.

Dynamic Deals | Foreign Secretary Boris Johnson repeated his call for the U.K. to make a clean break from the EU when it leaves the bloc, warning Prime Minister Theresa May that Britain won’t be able to take full advantage of the split unless it does.

No Plan B
| The government’s preparations for a “no deal” Brexit have largely ground to a halt, the Financial Times reported. This will make it almost impossible for Theresa May to walk out of negotiations with the EU in the next 10 months, the paper said.

Hunky Dory | A Bank of England spokesman ,refuted suggestions of a rift between the central bank and the U.K. Treasury after a report in the Financial Times said the institutions are at “loggerheads” over the future of City of London regulations after Brexit.

 

Source https://www.bloomberg.com/brexit

Inflation and poor growth see Bank of England ditch rate rise plans

Interest rates could stay low for as long as another two years, as falling inflation and weak economic growth force the Bank of England to scrap plans to push up rates in the coming months.

Mark Carney is expected to hold rates at 0.5pc at Thursday’s Monetary Policy Committee meeting, postponing a highly-anticipated rate rise for at least three months. The freeze will disappoint savers who have laboured under historically low rates for almost a decade – and a boon to borrowers who get extra time with cheap money.

But economists now suspect that inflation will keep falling quickly towards the Bank’s 2pc target, making it harder for policymakers to raise the rate.

Poor GDP growth at the start of this year and signs of a slowing global economy could also dent the Bank’s longer-term inflation estimates.

If that forces it to cut back its inflation forecast then the case for higher rates could evaporate altogether.

“They are stuck. The Bank can’t raise rates now, the economic numbers have been too weak recently,” said Martin Beck at Oxford Economics. “They should not have raised rates in November, closed the term funding scheme or worried that credit growth was too strong – those three things have contributed to the economy slowing.”

Markets are currently pricing in only two rate rises by August 2019, but George Buckley, an economist at Nomura, thinks even this may be too many if inflation is slowing sharply.

“Should the Bank publish a forecast with inflation below target based on market rates that would be quite a statement, as it would imply that even limited market pricing for rate hikes might prove too much,” he said.

UniCredit’s Daniel Vernazza believes it will be at least another year before rates rise to 0.75pc.

Kallum Pickering at Berenberg Bank fears the Bank has missed its chance. “They should have hiked by this stage of the economic    cycle, but they cannot do it now because of the soft data,” he said.