Brexit

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A law firm is taking action to ensure the formal process for the UK leaving the EU is not started without an act of Parliament. Mishcon de Reya, lawyers acting for a group of business people and academics, said it would be unlawful for a prime minister to trigger Article 50 without a full debate and vote in Parliament.

Brexit: Legal steps seek to ensure Commons vote on Article 50 - BBC News

Polarised politics may be a result of modern media. With more people getting information through social networks and on-line, people are more likely to only hear one side of the argument. That is what their social networks are increasingly likely to communicate. This becomes a self-reinforcing news flow, and creates polarised politics. For investors, polarised politics is a very negative development. Polarised politics increases the risk of extreme alternatives being offered.

Guest post: Brexit in the echo chamber | FT Alphaville

Hungary (on EU refugee quotas) and Italy (on constitutional reform) will likely have referendums in H2 2016. The latter is probably the single biggest risk on the European political landscape this year among non-UK issues, as PM [Matteo] Renzi’s political future may be tied to the outcome of the referendum.

Citi research: Biggest non-Brexit European political risks in 2016 - Business Insider

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Anecdotal evidence points to a looming labour crunch for the fruit and vegetable sector – worth £1.2bn a year – if the new prime minister triggers article 50 to leave the EU and targets restrictions on immigration as part of a new deal with Brussels. One grower member in Kent has a permanent workforce of 800 people – all migrants from EU countries.

Farmers forecast food price rises and job losses in life after the EU | Environment | The Guardian

The chatter in the main food tent reflected worries about food prices going up, instability caused by the loss of £3bn of annual EU subsidies for arable farmers and access to the single market – and even redundancies in the 40,000 strong agricultural workforce in Norfolk. But others were hopeful that being out of Europe could ultimately make the farming industry stronger.

Farmers forecast food price rises and job losses in life after the EU | Environment | The Guardian

Gove’s doubts were ventilated a little too publicly two years ago when, seemingly after drink had been taken, Gove told a Rupert Murdoch dinner party: “Boris is incapable of focusing on serious issues and has no gravitas. He isn’t a team player and plays to the gallery the whole time.” He also said he was incapable of taking serious decisions. Gove, it seems, was happy to go along with Boris the vote-winner, but after his side won the referendum, the game changed. Johnson had served his purpose.

The inside story of the most infamous, treacherous week in Tory history

Maybe Johnson knew that sorting out the UK’s relationship with the EU required an application and an attention to detail that was beyond him, or certainly was something he would not relish, and that the crown could wait. Last weekend he reportedly approached Theresa May, saying he would pull out of the leadership race if she would promise to stand down before the 2020 election. She said no. Who knows when Michael Gove got wind of the suggestion? It will have done yet more to confirm that Johnson's heart was not in it. Yet his heart has always been in becoming PM. Can this really be the end of that particular story?

The inside story of the most infamous, treacherous week in Tory history

Boris Johnson had spent Saturday playing cricket with his old friend Earl Spencer at Althorp House. Late on Saturday he had spoken to Gove, and agreed that the latter should be Chancellor if Boris was to become PM. The pair also discussed making  a joint appearance on TV to pacify the nervous markets, but decided against it. Instead, the next day Boris held a barbecue at his home near Thame in Oxfordshire, attended by Gove and two aides. Instead of the brainstorming session they expected, what they found was, as they later described it, a “boozy, shambolic, disorganised and ill-disciplined” encounter. The Johnson camp felt Gove was jumping the gun and making too many early demands about cabinet jobs, but to Gove’s people there was little evidence of Johnson - like Gove, exhausted by the campaign - hitting the ground running, or having even done much thinking about the thicket of decisions that confront the government. That was No 10’s job, said his supporters. Sausage, anyone?

The inside story of the most infamous, treacherous week in Tory history

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There are plenty of reasons to think trouble lies ahead. The U.K. is Europe's second-biggest car market and -- as Gadfly warned before the referendum -- it's a profitable place to sell motor vehicles. Thanks to the popularity of leasing, British buyers drive cars they might otherwise struggle to afford. Premium models with lots of add-ons earn higher margins.With a question over London's finance sector jobs, it's difficult to imagine British punters thinking now's the time to splash out on a prestige motor. Carmakers who export lots of vehicles into the U.K., such as Peugeot, face a double hit to revenue because of the weak pound. Then there's the risk that Britain's hara-kiri vote undermines confidence elsewhere in Europe too. With discounting already at high levels, European carmakers don't have much room to slash prices to prop up sales.

Car Industry Faces Brexit Breakdown - Bloomberg Gadfly

The danger to the UK’s financial services sector was highlighted by François Villeroy de Galhau, France’s central bank governor, who warned that banks would lose “passporting” rights to operate in the EU if Britain leaves the single market. The UK could try to adopt the path followed by Norway, which is a member of the European Economic Area but not the EU. But that has drawbacks: it requires Britain to implement all of the EU’s rules without having a say in writing them. And Jonathan Hill, the Briton who resigned at the weekend as EU’s commissioner for financial services, told the Financial Times that he was not sure an arrangement would work. “Most approaches that offer access come with free movement of people and I can’t see that flying given the weight of immigration as an issue in the referendum debate,” he said.

Banks begin moving some operations out of Britain - FT.com

But lawyers are warning that after Brexit, they would likely need a new legal home base, so they are preparing to shift at least some work to cities such as Dublin, Paris and Frankfurt. UK banks were also re-evaluating what to do with their businesses that trade EU — as opposed to UK — securities, because many analysts assume that clearing of those products will move to the continent. HSBC said before the vote that it could move as many as 1,000 trading jobs to Paris in the event of a Leave. But because the bank already has a Paris office, it could defer any decision until right before the UK’s exit comes into effect.

Banks begin moving some operations out of Britain - FT.com

The big US banks — JPMorgan Chase, Goldman Sachs, Bank of America, Citigroup and Morgan Stanley — have large operations employing tens of thousands of people in the UK. They have historically set up their regulated businesses in Britain and then used its right to “passport” into the rest of the 28-member bloc.

Banks begin moving some operations out of Britain - FT.com

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More than £650m of commercial property deals in the City of London have collapsed following the UK’s vote to leave the EU, including the proposed acquisition of a landmark office block by Germany’s Union Investment. The German fund manager had been in advanced discussions to buy Cannon Place, a 389,000 sq ft office scheme on Cannon Street in the City, for about £465m from Hines, the US property developer, according to three people familiar with the talks.

London property deals worth more than £650m collapse after Brexit - FT.com

Investment into UK real estate almost halved in the first six months of 2016 from a year earlier, according to Cushman & Wakefield, the property agents, as the referendum loomed. Investors spent £7.5bn in the period, down from £13.3bn a year earlier, with institutional funds in particular drawing back . Private wealth remained active, however, and some agents are hopeful that the market could be stimulated by the weakening of sterling against other currencies that has made UK property comparatively less expensive for overseas investors.

London property deals worth more than £650m collapse after Brexit - FT.com

If the U.K.’s decision to leave the European Union is going to hurt the U.S., it will likely come through the banking system rather than a direct hit on economic growth, Goldman Sachs warned Wednesday. “Financial contagion is a greater source of risk given the high interconnectivity between the U.S. and U.K. financial systems. However, the post-financial crisis central banking and regulatory regime should limit concerns over the banking sector,” wrote Elad Pashtan, senior U.S. economist, in a note.

‘Financial contagion’ biggest risk to U.S. from Brexit: Goldman - MarketWatch

The economist notes that, according to Bank for International Settlements data, U.S. banks held $424 billion in claims (assets) on U.K. borrowers in the fourth quarter of 2015, including $46 billion in loans to U.K. banks. Derivatives, guarantees and credit commitments account for another $495 billion of potential U.S. bank exposure to the U.K. In aggregate, the U.S. banking system’s exposure to the U.K. stood at $919 billion, far exceeding that of any other country, Pashtan note. U.K. banks also have significant exposure to America, holding an aggregate of $1.4 trillion of financial claims on U.S. borrowers, the data show.

‘Financial contagion’ biggest risk to U.S. from Brexit: Goldman - MarketWatch

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Here are the key risks the vote for a British exit from the EU, or Brexit, poses to financial stability, as per the BOE: Financing of the UK's large current account deficit, which relied on continuing material inflows of portfolio and foreign direct investment; The UK commercial real estate (CRE) market, which had experienced particularly strong inflows of capital from overseas and where valuations in some segments of the market had become stretched; The high level of UK household indebtedness, the vulnerability to higher unemployment and borrowing costs of the capacity of some households to service debts, and the potential for buy-to-let investors to behave procyclically, amplifying movements in the housing market; Subdued growth in the global economy, including the euro area, which could be exacerbated by a prolonged period of heightened uncertainty; and Fragilities in financial market functioning, which could be tested during a period of elevated market activity and volatility. It is not hard to see how many of this risks are "crystalizing" into realities. On the current account deficit, the pound has fallen to a 30-year-low against the dollar and Britain's credit rating has been marked down, making it more expensive to borrow.

Bank of England's July Financial Stability Report post-Brexit vote - Business Insider

A gigantic property fund is stopping people taking money out for the first time since the credit crisis of 2008. Savings and investment giant Standard Life froze investor withdrawals from its £2.9 billion ($3.8 billion) UK real estate fund after a flood of people tried to pull money out in the wake of the Brexit vote.

Jefferies warns of repeat of 2007 for UK property as Standard Life pauses withdrawals from fund - Business Insider

The race to succeed David Cameron as U.K. prime minister effectively became a proxy for the broader battle over how to manage withdrawal from the European Union, with Conservative Party candidates setting out their positions on what can be achieved and how fast. Pitches from all five candidates have focused on when Britain should trigger Article 50 of the Lisbon Treaty -- the formal start of two years of negotiations with the EU -- and what level of single-market access Britain should seek, as well as how much control it will have on migration and the fate of citizens of other EU countries who are already in the U.K. They have to appeal to party lawmakers and activists, many of whom want a full and rapid departure from the EU, while avoiding too many promises they’ll struggle to keep.

Brexit Strategies to Decide Race to Be Next U.K. Prime Minister - Bloomberg

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What we do know—and this is useful information—is that European bank stocks (measured by the bank component of the Stoxx Europe 600) plunged by more than 20 percent (over two days) following the outcome of the referendum. More broadly, as of July 1, 2016, European bank stock prices were down by nearly one third since the start of the year and by more than 75 percent since peaking in 2007. This suggests that capital in the European banking system is scarce; too scarce, in fact, to be confident about financial stability.

Brexit and Systemic Risk — Money, Banking and Financial Markets

More precisely, SRISK is an estimate of the aggregate shortfall of capital in the financial system in the event of a crisis (defined as a large—in this case, 40%—drop of the global equity market over the next six months). Analogous to stress tests, the idea behind SRISK is that an intermediary contributes to systemic risk to the extent that it is short of capital at the same time that a system-wide shortfall occurs (see, for example, here). It is precisely in such system-wide capital droughts that funding liquidity becomes most precarious, leading to damaging fire sales.

Brexit and Systemic Risk — Money, Banking and Financial Markets

Within days, Northern Rock, the first UK lender to embrace mortgage securitisation, called the FSA to say it had a liquidity problem. The biggest financial crisis for nearly a century was under way. Almost nine years since that fateful day, and the ghost of Bear Stearns is stalking the Square Mile again after the lockdown of two of the UK’s biggest property funds.

Property market turmoil has eerie echoes of start of financial crisi

However, investors have been spooked once again after insurance giants Standard Life, Aviva and M&G, froze redemptions in their retail property funds. While these funds are only suspended for an initial 28 days, a spate of so-called “gatings” in the space of less than 24 hours, has spread panic in the markets. When an open-ended property fund such as these is forced to take such drastic action, it essentially means that the outflows are so large that they don’t have the liquidity to return cash to investors.

Property market turmoil has eerie echoes of start of financial crisis

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The "hard Brexiters" are those want to act quickly and be gone. They want to curb European migration as quickly as possible, using a points system. They don't much value being part of the single market, and point out that just about every nation in the world has "access" to it, without being a member. You can call this the "Canada lite" model if you like. "Soft Brexiters" want to take their time, and retain as close a relationship with the rest of the European Union as possible. They want access to the single market, and some sort of minor concession on free movement. Perhaps, they muse, the EU would give us an emergency brake and annual quotas on both sides. Their priority is to avoid trade tariffs and secure a good deal for services, particularly financial services. That's "Norway plus".

The new divide: Hard or soft Brexit? - BBC News

"A couple of colleagues and I were in Newcastle, in the North East, discussing the fact that the vast majority of economists agreed that Brexit would lead to an economic slowdown. "A 2% drop in the United Kingdom's GDP, I said, would dwarf any savings the country would make from curtailing its contribution to the EU budget. 'That's your bloody GDP,' came the shouted response, 'not ours'." Those who want a second referendum should reflect on where sidelining those sort of voices could lead.

The new divide: Hard or soft Brexit? - BBC News

With the real estate tremors echoing the last financial crisis, the mounting fear is failure to control the aftershocks from the Brexit vote will propel the economy into recession. “I am expecting quite a sharp reduction in investment spending, a sharp hit to the commercial property market, probably a check to consumer spending, all of which could push us towards zero or below growth,” John Gieve, a former deputy governor of the Bank of England and veteran of the last crisis, told Bloomberg Television. Reacting to a rush by investors to redeem their money, M&G Investments and Aviva Investors followed Standard Life Investments in suspending trading in commercial-property funds that together total 9.1 billion pounds ($11.9 billion dollars). Industry analysts have warned that London office values could fall by as much as 20 percent within three years of the U.K. leaving the EU.

Brexit Erodes U.K. Economic Pillars as Property Investors Flee - Bloomberg

He begged the E.U. to make a tariff-free trade deal with the U.K., and promised that the British “will be your best friends in the world.” Farage was articulating the fundamental dilemma of Brexit. In 2015, forty-four per cent of the U.K.’s exports went to E.U. countries, and fifty-three per cent of its imports came from them. Although London is famous as a global financial center, it enjoys that status largely because it’s a gateway to the Continent.

Brexitonomics - The New Yorker

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Daiwa Securities Group Inc., a Japanese brokerage with operations in the U.K., would have to set up a business in the European Union that replicates or replaces some functions in London if Britain votes to leave the bloc, according to a memo to employees. “Brexit would have the potential to have a profound impact” on Daiwa Capital Markets Europe Ltd. and its London operations, the unit wrote in the document seen by Bloomberg. Hiroki Aoyama, a spokesman for the parent company in Tokyo, declined to comment. Financial firms including JPMorgan Chase & Co., HSBC Holdings Plc and Deutsche Bank AG are warning of the need to move activities from London if British people choose to leave the EU in the June 23 referendum. Citigroup Inc. will “rebalance” its European operations in the event of a so-called Brexit, a company memo showed this week.

Daiwa Sees ‘Profound Impact’ of Brexit on Its London Operations - Bloomberg

U.S. technology businesses like Alphabet Inc. and Facebook Inc. toil to make the real world as borderless and global as the digital worlds they create. The physical version just got a lot messier in Europe, the second-largest market for these giant companies. Britain voted on Thursday to leave the European Union, fracturing what was slowly becoming a single digital market into potentially two—or possibly more—jurisdictions for technology issues ranging from data privacy, competition, tax and recruiting.

What Brexit Means for Google, Facebook, Microsoft and Amazon - Bloomberg

At the launch, he made his intentions clear. Labour’s northern strongholds were very much in UKIP’s sights. Political scientists Rob Ford and Matt Goodwin later revealed that older, working class voters – who had long formed the core of Labour’s support – were becoming disillusioned. They felt “left behind” by social and economic change, and ignored by the political establishment (not least on concerns over rapid immigration from the EU). As a result, many were thinking of shifting to UKIP.

Sheffield demonstrates why Britain voted for Brexit - Business Insider

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The yield on 10-year Gilts has dropped almost 29 basis points to an historic low of 1.08pc, the result of flight to safety, recession fears, and hopes of more quantitative easing. These collapsing borrowing costs expose the fallacy behind George Osborne’s ‘punishment Budget’. There was never any chance that Parliament would enacted his demented plan to crash the economy with a violent fiscal squeeze when macro-economic logic called for the exact opposite. His credibility is shattered. He must go immediately.

The sky has not fallen after Brexit but we face years of hard labour

They want unfettered access to the EU single market and passporting rights for the City, and this means either pushing for the Norway option of the European Economic Area (EEA), or a hybrid variant.  This safe-exit is a compromise, and an olive-branch to the EU since we would continue paying into the EU budget and accepting the EU Acquis. It would last until we have negotiated our bilateral trade deals with the rest of the world. It also means accepting the free flow of EU migrants for a while. This is incendiary, of course.

The sky has not fallen after Brexit but we face years of hard labour

Just look at what this act of vandalism has wrought. There has been a 500% increase in the number of hate crimes reported, as migrants are taunted on the street, told to pack their bags and get out – as if 23 June were a permission slip to every racist and bigot in the land. And for what? So Boris could get a job and so Gove, Hannan and the rest could make Britain more closely resemble the pristine constitutional models of the nation-state found in 17th-century tracts of political philosophy, rather than one that might fit into the interdependent, complex 21st-century world and our blood-drenched European corner of it.

A warning to Gove and Johnson - we won’t forget what you did | Jonathan Freedland | Opinion | The Guardian

They did it with lies, whether the false promise that we could both halt immigration and enjoy full access to the single market or that deceitful £350m figure, still defended by Gove, which tricked millions into believing a leave vote would bring a cash windfall to the NHS. They did it with no plan, as clueless about post-Brexit Britain as Bush and Blair were about post-invasion Iraq. They did it with no care for the chaos they would unleash.

A warning to Gove and Johnson - we won’t forget what you did | Jonathan Freedland | Opinion | The Guardian

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U.K. consumer confidence plunged the most in 21 years, the latest sign that Britons’ vote to leave the European Union is harming the nation’s outlook. Gfk’s core index slid to minus 9 in a special post-referendum survey conducted from June 30 to July 5, from minus 1 earlier in June. That’s the biggest slide since December 1994 when increases in tax, interest rates and job insecurity weighed on spending. While confidence among respondents who said they voted to remain in the EU dropped to minus 13, the decline was tempered by a lesser slide of minus 5 among those who said they opted to leave.

U.K. Consumer Sentiment Dives Most Since 1994 on Brexit Effect - Bloomberg

There was also cause for concern in the FTSE 250 index of medium-sized firms, which stood at 17333 before the vote and finished last week at 16198, down almost 10%. The FTSE 250 is almost quaintly British, with most making sales in sterling. For these companies the fall in the currency means they become less valuable whereas the generally larger, multinational firms in the FTSE 100, which earn most of their revenues abroad in dollars, climb in value.

Sterling’s down, sales are falling, shoppers anxious: gloom gathers over the UK economy | Business | The Guardian

UK business confidence has fallen sharply in the aftermath of the vote to leave the EU, research suggests. The share of businesses that reported feeling pessimistic about the UK economy doubled in the week after the Brexit vote. The figure jumped from 25% the week before the referendum to 49%, according to YouGov and the Centre for Economics and Business Research.

Business pessimism 'doubles after Brexit vote' - BBC News

Part of the problem with the Treasury analysis of the immediate impact of leaving the EU – which in effect forecast a shallow recession and drew heavy fire from the Leave campaign – was that it assumed no policy response. In fact, there now seems to be every possibility of a triple stimulus  – monetary and fiscal on top of the devaluation dividend already bestowed by markets. The Crabb plan to boost infrastructure spending, if adopted, would provide longer term fiscal support on top. Again, this is a relatively sound idea, which frankly should have been tried a long time ago.

We’re all Keynesians now, but a hard reality awaits our brave new world

We were told that the UK must vote to “take back control”, that quitting the EU would increase our diplomatic power in the world, that we could reduce immigration and boost the economy, that we would be able to maintain access to the single market and restrict the free movement of labour, and that – a real doozy this one – the only way to save the European Union was by breaking it up. These are all clever arguments – beautifully crafted paradoxes designed to mist up the windows. Subject any of them to a modicum of scrutiny, however, and they fast disappear up their own conclusions.

The paradoxes at the heart of the Brexit campaign make planning impossible