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Brexit relief for UK economy might not last long

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Brexit relief for UK economy might not last long

By William Schomberg



FILE PHOTO: Clocks in London's Canary Wharf financial centre strike 07:00 GMT, marking the time the polls open for Britain's general election, London, Britain December 12, 2019. REUTERS/Russell Boyce


LONDON (Reuters) - Britain’s economy will cast off some of the Brexit uncertainty that has held it back since 2016 after Prime Minister Boris Johnson’s election triumph, but the risk remains of another “cliff-edge” showdown with Brussels in a year’s time.


With Britain’s exit from the European Union on Jan. 31 now a foregone conclusion, the question for investors is whether Johnson will stick to his campaign promise not to delay the end-of-2020 deadline for a new EU trade deal.


That deadline is widely seen as tough to meet, given the scale of issues to be resolved.


In the short term, the biggest election victory for Johnson’s Conservative Party since Margaret Thatcher’s 1987 triumph removes a major brake on growth: the deadlock in parliament over how, or even whether, to proceed with Brexit.


Johnson said in a victory speech on Friday that Britain would leave the EU on Jan. 31 “no ifs, no buts, no maybes.”


His election win also banishes the prospect of a sharp shift to the left under the Labour Party which promised nationalisations, more power for trade unions and a much bigger role for the state, which had worried many business leaders.


“For Brexit, this all means that Johnson’s deal will be ratified, most likely allowing the UK to leave the EU at the end of January,” economists at ING said in a note to clients.


“But more importantly, it could give the prime minister the political breathing room to ask for an extension to the transition period.”


The pound jumped by the most in nearly three years on the first sign of the scale of Johnson’s victory and shares in companies that rely on domestic British economy rose. [GBP/]


Investors pared back their bets on the Bank of England cutting interest rates as the uncertainty about the way ahead for Britain’s economy lifted, at least in the short term.


The world’s fifth-biggest economy has slowed since voters decided to take Britain out of the EU nearly 3-1/2 years ago.


Leaving the bloc, which accounts for nearly half the country’s exports, is seen as a drag on its economic growth over the long term.


But the new sense of clarity about Brexit, at least in the short term, is likely to lead to a pick-up in the pace of growth in the coming quarters, economists said.


British government bond prices fell sharply as trading in London’s gilt markets opened, helped not only by the conclusive election result but also by signs of an end to the U.S-China trade deal that has weighed on the global economy. [GB/]


But economists turned their attention quickly to what the election result meant for Johnson’s longer-term Brexit plans.


He promised during the election campaign not to extend a Brexit transition period beyond Dec. 31 2020.


That raises the prospect of tariffs and other barriers coming into force for Britain’s trade in goods and services with the EU in just over a year’s time.


Economists at RBC Capital Markets said the new government would probably try to keep a no-deal Brexit on the table for as long as possible to maintain leverage with the EU in the trade talks.


“However, with such a comfortable winning margin Johnson is not reliant on any faction of his party, in particular the hard-Brexiteers who might have tried to steer him toward a hard Brexit at the end of the transition period,” they said.


“Some form of extension now looks more likely even if some effort will be made to give the impression that is not the transition period that the Conservative Party promised not to extend in its manifesto.”


But economists at Citi said they thought Johnson would not try to delay the transition phase because he won support from voters who backed the Conservatives for the first time because of the party’s tough stance on Brexit.


“In this scenario, when the UK exits the EU Single Market and Customs Union on 31 December 2020, we expect a mild recession to follow in 2021 as divestment among exporting sectors accelerates,” they said.



-- © Copyright Reuters 2019-12-13
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18 hours ago, uesnyc said:

NYT columnist and Nobel prize winning economist Paul Krugman said the US economy would crash after the 2016 elections.

Makes me wish I was holding some GBP right now.



...does Krugman ever get anything right ? 

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15 hours ago, Loiner said:

More Reuters gloom about the UK’s prospects. are they constantly trying to talk down the UK for overseas consumption only?

Hasn’t anybody told them that it’s all over now? Project Fear didn’t work before and it won’t work now that Boris will take us from the EU clutches in about six weeks. 

Brexit ( and the financian + economical consequenses) still did not start yet, probably when it is clear a trade deal wibetween UK and EU is NOT going to happen, and Boris decides to have a hard Brexit, end of Dec 2020.

I hope your "project fear" is the same as the millenium bug, but looking to my own business, quite some EU businesses are NOT so interestd in UK products ( spare parts, components, branded items) , as.. no idea, what might happen in 13 months.

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4 hours ago, sanemax said:

If Boris will not take us out.................why would we need to join again ?

You didnt think that through, did you .

Who said, the EU will accept the UK ( or what is left of it in a few years) as a member again ?

Remind, this is NOT decided at Downing street nr 10, but in the EU Council, existing of the heads of governments of the EU member states. And 1 Feb. the UK is no longer a member, so has to say as much as the prime minster of Argentina or Zimbabwe.

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3 hours ago, hotchilli said:

Best news ever, now people can start to work towards the future they voted for 3 years ago.

trade deals will start immediately with those who wish to trade, UK has been trading for centuries with Europe... those who said we would collapse and die were liars! 


I know several people who though they didn't exactly "collapse and die", they did have problems after their jobs disappeared - that happened not because of the 'uncertainty' surrounding Is-Brexit-going-to-happen-or-not-after-the-referendum, but directly because of the result of the Brexit-referendum.  


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43 minutes ago, andersonat said:


I know several people who though they didn't exactly "collapse and die", they did have problems after their jobs disappeared - that happened not because of the 'uncertainty' surrounding Is-Brexit-going-to-happen-or-not-after-the-referendum, but directly because of the result of the Brexit-referendum.  


And I know some that gained fruitful employment when the Brexit vote was carried to get out.... employment swings both ways!


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