April 4, 2017

Pegler’s market report – 04.04.17: The 2-year countdown to leave the EU begins

As published in the Brighton Argus (04.04.17) Business on page 21 under the title Pegler’s Market Report:

The 2-year countdown to leave the EU begins

Financial markets largely shrugged off the well-flagged formal triggering of the UK’s exit from the European Union.

The conciliatory tone struck in Prime Minister Theresa May’s letter to EU Council President Donald Tusk minimised volatility on currency markets, in what marked the start of an uncertain two-year process of negotiations.

There are a plethora of unanswered questions, including whether exporters will keep tariff-free access to the single market and whether British-based banks will still be able to serve continental clients, not to mention immigration and the future rights of EU citizens in the UK and Britons living in Europe.

Just a few days after article 50 and it is becoming increasingly apparent that this has been a trigger for several firms to set contingency measures into action.

Lloyds of London’s decision to relocate jobs to Brussels, coupled with rumours of potential relocations for the likes of Citi and JP Morgan will do little to inspire confidence in the City of London. It is likely that London will be the main loser from the coming two years of negotiations, much in the same way it was the UK’s main beneficiary from our EU membership. While the UK’s loss may be the EU’s gain in the short-term, the long-term picture of a more open, globalised UK should mean that perhaps the EU and the UK will be better off further down the line.

Ryanair has warned that the UK could have no flights to and from Europe after it leaves the EU. The low-cost airline said aviation should be treated as a matter of urgency in Brexit negotiations, as summer schedules for 2019 must be finalised by March next year. Apparently, without a bilateral agreement being struck with the EU, Britain will have to revert to historic WTO regulations that do not cover aviation.

Away from the impact of Brexit on the pound, data from the Bank of England (BoE) released last week has shown that British consumer borrowing slowed by less than forecast in February. Consumer credit in February rose by £1.4bn, compared with a forecast increase of £1.3bn and down from an increase of £1.6bn in January.

Meanwhile, figures from the BoE showed that the number of mortgages for house purchase approved by lenders fell to 68,315 in February from 69,114, below the median forecast of 69,900.

In other news, the Bank of England has backed the use of palm oil in its new £20 note following a backlash from vegans and religious groups over the use of animal fat in the plastic £5 note. The Bank said the world’s most commonly used vegetable oil was the “only practical alternative” to tallow, following considerations about cost and availability.

By David Pegler, Brighton Capital Management