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The Governor of the Bank of England (BoE) Mark Carney yesterday told the Cabinet that the impacts of a ‘no deal’ Brexit scenario on the UK economy could include a fall in house prices of 35 percent over three years and a fall in the British pound, as well as a rise in interest rates, inflation and unemployment. He also reportedly warned that the BoE would not be able to support the economy by cutting interest rates as it did in the aftermath of the Brexit referendum in 2016. However, Carney said that if the UK and the EU agreed a Withdrawal Agreement based on the Government’s Chequers proposal, the economy would outperform current forecasts.
Elsewhere, head of the Confederation of British Industry (CBI), Carolyn Fairbairn, told the BBC Radio 4’s Today Programme that in a ‘no deal’ scenario, “The hammer blow to our economy would be enormous and I think many smaller businesses can’t properly prepare and that just doubles the potential impact if we go over that cliff,” adding that “Businesses also think we should be getting behind the Chequers proposals because that is a way through this… We have the beginnings of a blueprint. Let’s work with that.”
Elsewhere, the Government yesterday released a second round of documents outlining information for businesses and citizens to prepare for a ‘no-deal’ Brexit scenario. It warns that UK car manufacturers would need to obtain certificates showing that they comply with EU safety and environmental standards, while EU manufacturers would need to obtain relevant UK certification. The Government also states that free mobile roaming could not be guaranteed in case of ‘no-deal’ and that mobile phone bills for people in Northern Ireland could increase due to “inadvertent” data roaming coming from signals from the Republic of Ireland.
Additionally, the UK government confirmed that Irish citizens in the UK will continue to benefit from their current rights under the Common Travel Area (CTA) in the event of a ‘no-deal’ Brexit. These include the right to work, study, vote and access social welfare benefits and health services in the UK. The government notice added, “Where required domestic legislation and agreements would be updated to ensure that the CTA rights continue to have a clear legal basis.” It also notes that the Irish government “has been clear…in its commitment to the continuation of the CTA.”
Meanwhile, Shadow Brexit Secretary Sir Keir Starmer said yesterday, “The government still has no credible plan for Brexit. The cabinet should be planning to negotiate a good deal for Britain, not planning for failure or blaming businesses for the government’s chaos.”
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Rating agency Moody’s yesterday warned that the risk of a ‘no-deal’ Brexit has “risen materially” over the past months, and that the UK would be at risk of entering a recession in a ‘no-deal’ scenario. While the company assumes that the UK and the EU would “likely take swift steps to limit short-term disruption,” it still cautioned of “a sharp fall in the value of the British pound, leading to temporarily higher inflation and a squeeze on real wages over the two or three years following [a ‘no-deal’] Brexit. This in turn would weigh on consumer spending and depress growth, with a risk of the UK entering recession.” However, Moody’s added “Prompt and forthright policy action could, in principle, avoid material damage to the UK’s economic and fiscal strength and therefore its credit quality.”
This comes as JPMorgan predicts that a financial crisis is likely to occur in 2020 due to reduced liquidity in financial markets. Bloomberg report that the bank’s model predicts a 20 percent fall for US stocks.
Brexit Secretary Dominic Raab has told EU Chief Negotiator Michel Barnier that he will hand over data on trade flows going across the Irish Sea, Bloomberg reports. The paper cites an EU official as saying that the data could show that many goods destined for Northern Ireland from Britain move through Dublin, which could mean that customs and regulatory checks could take place in the Republic of Ireland rather than in Northern Ireland. It is hoped that this measure will help to progress talks between the UK and the EU over the proposed Irish ‘backstop’ to avoid a hard border on the island of Ireland, with EU diplomats saying that UK negotiators would be willing to make concessions on the border issue in order to reach a deal by November. However, the move also risks creating discontent among the Democratic Unionist Party (DUP), which appears opposed to any ‘backstop’ which would create a regulatory border down the Irish Sea.
French Europe Minister Nathalie Loiseau yesterday said that France was opposed to a “blindfold Brexit” that would see the UK leave the EU without a clear agreement on their future relationship. She said, “We have to have a clear sense of the balance of rights and obligations on the future relations between the UK and the EU27. Details will be worked out afterwards, but it would be to the benefit of neither the UK or the EU27 to remain vague on what is going to be our future relations at the moment of leaving.” On the risk of a no-deal Brexit, Loiseau warned that it may see planes grounded and the Eurostar trains stopped at the French border, adding, “This is the reason we must prepare for a no deal because we cannot wake up on 30 March and tell our businesses and citizens: ‘Well, we thought it would never happen, so we are not ready.’”
Meanwhile, according to The Guardian, EU leaders will not provide their chief Brexit negotiator Michel Barnier with an updated mandate at their informal Salzburg summit next Thursday. The paper cites an unnamed diplomat saying the summit will be used to prepare for an extraordinary Brexit summit in November.
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Bloomberg reports that pharmaceutical companies, including GlaxoSmithKlein, AstraZeneca and Johnson & Johnson, are preparing to make hundreds of millions of pounds of new investment commitments in the UK, as part of the government’s strategy to improve the competitiveness of the UK’s life-sciences sectors post-Brexit. Professor Sir John Bell, who leads the government’s life-sciences plan, has also suggested the UK could have more regulatory flexibility after its withdrawal in areas such as vaccines, stem cell research and big data.
Poland said it is planning to oppose any sanctions that could result from the Article 7 disciplinary process against Hungary if the measures are taken by the European Council. This comes after the European Parliament this week recommended launching the procedures, citing concerns over Hungary’s respect for the rule of law. In a statement, the Polish Foreign Ministry said, “Every country has its sovereign right to make internal reforms it deems appropriate,” adding, “Actions aimed against member states serve only deepening divides in the EU, increasing citizens’ current lack of confidence [in] European institutions.”
Conservative MP George Freeman, who previously chaired Prime Minister Theresa May’s policy board, has said May should “deliver our departure from the European Union on March 29” and then step down. Speaking at an event yesterday, Freeman argued, “The shape of our future relationship must be forged by a new leader. Someone liberated from the poisonous politics of the EU referendum and the shambles that has followed.” He also criticised the actions of those Conservative MPs calling for the Prime Minister to “chuck Chequers” as “irresponsible” and “unnecessary.” He said, “We do not have to decide [our long-term relationship] now. So why don’t we simply agree to a Withdrawal Agreement, and an ambitious, non-binding, political statement of an ambiguous new trading agreement with the EU.”
The Bank of England’s Monetary Policy Committee (MPC) yesterday voted unanimously to keep interest rates constant at 0.75 percent, while expressing concern regarding “greater uncertainty” around the Brexit negotiations. According to the MPC “there had been indications most prominently [since the committee’s previous meeting] in financial markets, of greater uncertainty about future developments in the [Brexit] withdrawal process”. However, the policy maker still raised third-quarter GDP growth expectations from 0.4 percent to 0.5 percent.
In a new blog, Open Europe’s Anna Nadibaidze reviews the reactions to European Commission President Jean-Claude Juncker’s last State of the Union speech, entitled “The Hour of European Sovereignty.” She writes, “Despite the fact that most of the attention focused on the European Parliament’s vote to launch Article 7 procedures against Hungary, there was also a variety of mixed reactions to Juncker’s proposals.” The review shows that many EU politicians welcomed Juncker’s proposals for a stronger and united Europe, but do not always agree on the means to achieve this goal. Meanwhile, the European media was mostly critical, pointing to the “state of disunion” among member states and questioning the Commission’s success in bringing closer European integration.