Brexit Bulletin: The Economy Slows

(Bloomberg) -- Sign up to receive the Brexit Bulletin in your inbox, and follow @Brexit on Twitter.

Has Donald Trump turned negative on Brexit? That’s just become a subject of debate.

Having once described the U.K.’s breakup with the European Union as a “beautiful, beautiful thing,” the U.S. president was said to have told European Union leaders in Brussels on Thursday he’s now concerned it will cost American jobs. The story lingered for a while, only for the White House to deny the account.

Someone who should perhaps be worrying about the economic impact of Brexit is Prime Minister Theresa May, after data showed U.K. output rose just 0.2 percent in the first quarter, the Office for National Statistics said Thursday. That was the slowest in a year, weaker than previously estimated and less than half the pace recorded in the euro area.

A report overnight then showed consumer confidence slipping to its lowest level since immediately after last June’s referendum.

Such sluggishness won’t help May’s re-election bid and could weaken her negotiating hand. The softer the economy, the less bargaining power she has over the EU, and the more she needs to safeguard trade with the bloc.

Dan Hanson at Bloomberg Intelligence predicted the economy would stay “subdued for the rest of the year” as faster inflation hits households whose wages are failing to keep up. A pound-induced boost to exports has yet to materialize.

May did get some good news with another report showing net migration fell to a three-year low in 2016 to 248,000, though that’s way above the “tens of thousands” she seeks. A total of 117,000 EU citizens took their skills and talents and left the U.K. last year—a 36 percent increase from 2015—and the number of arrivals from the bloc fell for the first time since 2012.

Narrowing Polls

The Times reported a new YouGov poll showing that the Conservative Party’s lead over Jeremy Corbyn’s Labour Party has shrunk to just five percentage points from as much as 24 points at one stage. If the new poll proves accurate, the Tory majority in Parliament would shrink to two from 17, according to The Times—certainly not what May envisaged when she called the election.

Sterling fell after the poll, and as investors in Asia sold the currency after the U.K.’s first-quarter economic growth missed estimates.

Data also showed more millennials tried to register to vote ahead of the election than before last year’s referendum, which is likely a boost for Corbyn.

The major political parties resume their national campaign on Friday after suspending activities following the Manchester bombing. Corbyn will say the war on terror isn’t working, laying some of the blame for domestic terrorism on British foreign policy.

Outside Advice

German Deputy Finance Minister Jens Spahn has some advice for May: Cool the rhetoric. 

Spahn used a Bloomberg Television interview on Thursday to warn that attacks on the EU from the campaign trail risk hurting the Brexit talks. May has accused the EU of meddling in the election.

“The harder the rhetoric is in a campaign, the less room might be there for compromises,” said Spahn, a deputy to Wolfgang Schaeuble.

He also said British goods used in making European products may require a special stamp in future.

The Future of Finance

The benefits of a London hub for euro clearing are “fully understood” by European governments, despite recent claims that the industry should be forcibly moved to the continent after Brexit, the head of London Stock Exchange Group said.

“The rhetoric at times tends to perhaps exceed reality on the ground,” Xavier Rolet said on Bloomberg Television.

Aberdeen Asset Management CEO Martin Gilbert said more of his employees would need to move if London lost euro clearing.

Still, Catherine McGuinness, City of London Corporation policy chair, said she had seen “no flood of people away from London,” and Lloyds Banking Group Chairman Norman Blackwell said London will still flourish after Brexit.

Brexit in Brief

• Irish Social Protection Minister Leo Varadkar, tipped to be next prime minister, says it’s possible that Ireland and the U.K. can protect their citizens’ rights to work and live in each other’s country after Brexit
• Centre for European Reform says no Brexit deal would trigger a U.K. recession
• Birds Eye owner Nomad says weaker pound is hurting profits because fish are priced in dollars
• Trips by Great Britain residents to Ireland fell 11 percent between February and April
• The Brexit bill that the EU wants the U.K. to pay includes the cost of English teacher salaries at elite schools in Brussels for two years after Brexit, the Financial Times reported.

And Finally…

Tony Buckley’s job is to build what will be the EU’s only land frontier with the U.K. after Brexit, and he already knows exactly what he wants.

From his phone, the Irishman pulls out a picture of his “favorite border crossing.” It’s a bucolic scene: two small wooden sheds on either side of a low-slung stone wall, surrounded by forest, perched on the road between Switzerland and France. “It’s lovely, deserted,” said Buckley, a senior official at Ireland’s tax authority. “Not a customs man in sight.”

Bloomberg’s Dara Doyle talked with Buckley as he analyzed the challenges posed by deciding what to do with the 310-mile (500-kilometer) border between the Republic of Ireland and the U.K. province of Northern Ireland.

For more on Brexit follow Bloomberg on Twitter, Facebook and Instagram, and see our full coverage at Bloomberg.com

To contact the author of this story: Simon Kennedy in London at skennedy4@bloomberg.net.

To contact the editor responsible for this story: Lisa Fleisher at lfleisher2@bloomberg.net, Timothy Coulter