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Brexit hasn’t really begun to bite as yet

By Orin Gordon head of ACCA Caribbean Thursday, April 20 2017

So May prefers June. At the time of writing this, the UK parliament hadn’t voted yet on the decision by the British cabinet to call for a snap election on June 8, two years into the term of the Conservative government, and with three to go. We’re not even halfway through the term. But, however this plays out, the Prime Minister Theresa May is seeking both a stronger mandate for a momentous transformation of the UK’s economic and political alliances and relationships (the whole point of a British exit), and to take advantage of the historically low polling of the Labour party, led by Jeremy Corbyn.

May has referred several times to the constraining limits of the slim majority she holds, 17 seats in the 650 seat House of Commons. She assumed office after the sheer momentousness of the vote to Leave made the position of David Cameron, who called the referendum and backed Remain, untenable.

Her political opponents have assailed her for what they see as political opportunism. The Tories are miles ahead of Corbyn’s Labour in the polls, and this is an opportunity to crush them, they reason. But as a prime minister who was not elected but is overseeing potential upheaval, there is some logic in seeking stronger backing.

The outcome of the Brexit vote last June was a shock to the system. Many of us who hold UK bank accounts, live elsewhere and sometimes have to engage in foreign currency transactions, saw ourselves grow poorer in real time that unforgettable morning after. The Pound’s slow, dramatic, interminable tumble caused a pit-ofthe- stomach queasiness, not unlike what we feel when a plane loses altitude quickly and suddenly. The British currency has settled at between TT$8.2 and TT$8.5 to 1, but it hasn’t looked close to getting back to the nice round 10 to 1 of a year ago this time.

It had been a calculator-free relationship. No longer. So in that one respect, Brexit has had a significant, settled effect, wiping 15% off the value of the Pound in the 10 months since.

What’s the longer-term outlook? It will hit jobs in the UK, with European companies and non-government offices looking to relocate.

The European Union has got to make the cost of leaving high, to deter other countries which may be similarly inclined. Otherwise its very existence is at stake. There is talk of Britain keeping its trade arrangements, but that appears to be wishful thinking.

The short-term global outlook is much better, according to the most recent Global Economic Conditions Survey. The quarterly survey of global CFOs and finance professionals is conducted by ACCA and IMA (the Institute of Management Accountants).

The cost of doing business has been cited as a concern by nearly half (46%) of firms. Despite this, 22% are planning to create more jobs and raise capital expenditure. Both increased significantly (16% and 14% respectively) in the last quarter of 2016. So the confidence is there.

Faye Chua, head of business insights at ACCA, say there’s been a strong start to the year globally despite the potential threats to the world economy -- such as a more inward looking trade policy from the Trump administration, the potential of a Eurozone banking crisis during a key election year across Europe and the UK’s triggering of Article 50 to begin the process of leaving the EU.

There are other factors in play.

“The prospect of increased government spending as austerity measures come to an end in many developed economies means that short term prospects look bright”, Chua says.

That’s especially the case for Germany, the EU’s biggest economy.

Says Chua: “These are the clearest signs of a synchronised and sustained recovery since 2011, and we can reasonably expect that to continue over the next two quarters.” The survey itself notes that “some of the main risks to the continent have been receding in recent months.” But that could change. “One potential issue is France’s presidential elections in May,” the report warns, an election that could see the further mainstreaming of Marine Le Pen’s farright, isolationist National Front.

Yes, there are signs that the global economy is bouncing back after some very tough years.

The IMF is expecting global growth of 3.4% this year, the fastest rate of growth since 2012. However, US President Donald Trump hasn’t yet followed through on his threat to dismantle free trade, and serious Article 50 negotiations haven’t begun.

Perhaps the real effects of Brexit beyond Britain are yet to be properly felt.



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