Brexit effect comes into focus
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As the UK approaches the sixth anniversary of the vote to leave the EU, observers are beginning to get a clearer picture of what the Brexit effect has wrought upon the economy. And it isn’t pretty.
The challenge thus far has been disentangling the many forces dragging on the UK’s performance. The Office for Budget Responsibility maintains that Brexit will chip 4 per cent off productivity and gross domestic product — and little over half of that damage has yet to occur. The UK is lagging behind the rest of the G7 in terms of trade recovery after the pandemic and, according to the OECD, it will have the lowest growth in the G20 (with the exception of sanctioned Russia).
Downing Street has insisted it is “too early to pass judgment” on whether Brexit is having a negative impact on the economy — which could be heading into a recession. “The opportunities Brexit provides will be a boon to the UK economy in the long run,” a spokesman said. But economists have not yet been able to find any significant positive impacts of these policies.
Red tape and stricter border controls introduced in January 2021 caused a “steep decline” in the number of trading relationships, according to a study by the Centre for Economic Performance at the London School of Economics. The number of buyer-seller relationships fell by almost one-third. It also found that Brexit “increased average food prices by about 6 per cent over 2020 and 2021”.
As the latest UK trade figures are due to be published today, the Big Read explores the debate as the evidence of Brexit-induced economic self-harm starts to pile up.
For up-to-the-minute news updates, visit our live blog
Need to know: the economy
Eurogroup president Paschal Donohoe has played down the likelihood of a eurozone crisis resembling the sovereign debt sell-off that took place in the early 2010s. Donohoe, who is also Ireland’s finance minister, said the bloc now has stronger foundations that will enable it to ride out recent market volatility, and that its economy will grow this year and next. “We are all confident about our ability to navigate through the changes that are taking place,” he said.
Latest for the UK and Europe
Britain is braced for its biggest rail strike in 30 years, as last-ditch talks to avert a walkout collapsed today. Around 40,000 Network Rail staff at 13 train operators will walk out over pay and redundancy disputes tomorrow, Thursday and Saturday. Meanwhile, business secretary Kwasi Kwarteng is moving to scrap a legal ban on the use of temporary workers to replace striking staff.
In further travel disruption, low-cost airline easyJet has announced it will pare back its summer schedule as staff shortages continue to hobble the sector. It said it would now fly about 87 per cent of 2019 levels in the three months to the end of June, down from the 90 per cent it forecast in May. In the following quarter this would rise to 90 per cent, down from a previous expectation of 97 per cent. EasyJet has faced significant disruption at London Gatwick and Amsterdam, which have both introduced flight caps to try to get a grip on disruption following weeks of last-minute cancellations.
The UK’s financial regulator has moved to tighten rules around so-called buy-now-pay-later lending, a form of short-term credit. Under new rules, providers will be required to carry out checks on consumers and receive approval from the Financial Conduct Authority. Misleading adverts will also come under greater scrutiny. The aim of the changes is to ensure consumers understand that they are taking on debt, and that providers are checking people’s ability to afford the products they purchase.
Sales at Scotland’s top 20 independent whisky distilleries were badly affected in the 2020-21 financial year, due to the 25 per cent tariff imposed by the Trump administration in 2019 and Covid travel restrictions. The trade war contributed to an almost 10 per cent decline in revenues, which totalled £1.35bn in 2020-21 versus £1.5bn in the previous period. Though the outlook for the next year is brighter, further headwinds for whisky producers include a shortage of shipping container space and the cost of living crisis.
President Emmanuel Macron has lost his majority in France’s National Assembly after a strong showing by a left-green opposition alliance and a late surge from the extreme right. Macron will need to strike deals with other parties in the assembly to pass legislation but far left and far right MPs say they will block his attempts to legislate and to reform the state pension system. Élisabeth Borne, Macron’s prime minister, said the situation was “unprecedented” and represented “a risk for the country”.
A former urban guerrilla who once spent time in jail for his political beliefs secured victory yesterday in Colombia’s presidential election. Gustavo Petro took 50.5 per cent of the vote versus 47.3 per cent for his main rival Rodolfo Hernández. The new president is expected to usher in the most leftwing government in Colombia’s history. The result, writes Gideon Long in Bogotá, represents a “sea change for the South American nation”.
The price of bitcoin fell below $20,000 over the weekend for the first time since November 2020. The drop for the most actively traded digital currency has raised concerns over forced liquidations of large leveraged bets in crypto markets, which could spur further sales and intensify a credit crunch that has already triggered tumult at crypto lenders such as Celsius.
European equity markets enjoyed some respite from last week’s sharp declines today, but investors are being warned not to expect it to last long. Rising rates and falling economic growth have created what Sean Darby, strategist at Jefferies, described as a “perfect macro storm”. The regional Stoxx 600 share index added 0.7 per cent in choppy trading. The index has dropped almost 17 per cent so far this year.
Need to know: business
Decision makers at European businesses with operations in China are feeling the effects of Beijing’s zero-Covid policy, as lockdowns and border closures isolate operations and knock chief executives’ confidence in the world’s biggest consumer market. “China operations are becoming increasingly isolated due to China-based staff, both foreign and Chinese, being unable to travel to European headquarters for information exchanges, networking, training and the sharing of expertise,” the EU Chamber of Commerce in China warned.
Primark, one of the UK’s largest clothing retailers, will trial a click-and-collect service later this year in its first foray into online sales. The retailer was one of very few large chains to hold back from ecommerce as Covid restrictions closed stores and consumers moved online. The trial will enable customers to order children’s clothes online and pick up the items from one of 25 shops in the North West of England.
Nelson Peltz, the activist investor known for waging campaigns against the management of companies including consumer goods group Unilever and asset manager Janus Henderson, has found himself the target of investors demanding changes at his Trian Investors 1 fund. The group is seeking to shake up the board at the London-listed fund “to improve governance and restore trust”.
Pfizer, the US pharma group, will pay €90.5mn for a stake in vaccine maker Valneva in a deal that will boost the French company’s programme to tackle Lyme disease. The transaction will give Pfizer 8.1 per cent of the business and will be seen as a vote of confidence in Valneva, which has weathered turmoil with its Covid-19 vaccine candidate.
The World of Work
How can businesses bridge the skills gap? Andrew Hill offers up six insights, including combining traditional qualifications with “higher-velocity training in fast-emerging tools and techniques”.
An FT report into upskilling also explores this topic and argues that, as well as new skills, shortfalls in more basic capabilities also need to be addressed so as not to erode companies’ efficiency.
Half of engineering companies surveyed by the Institution of Engineering and Technology said they had experienced difficulties with a lack of skills, both within their existing workforce and in the wider labour market. To help narrow that gap, the government has ordered colleges to take into account the findings of its local skills improvement plans, drawn up by regional trade groups, so that courses better match the needs of local industry.
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