Brexit Bulletin: An Acid Test

(Bloomberg) -- Today in Brexit: As political machinations resume in Westminster, the world is watching the U.K. for clues on what a new trade regime may mean for the global economy.

What’s Happening?

Brexit has made the U.K. a laboratory for the world’s economic future, giving the exit process an importance that goes beyond the drama in Parliament.

The nation's departure from the European Union is giving an early insight into how countries can cope with new trade barriers and increased uncertainty — an extreme example of what may come elsewhere. The signs aren't encouraging: U.K. growth has slowed, consumer confidence has dropped and businesses are putting off spending decisions.

Chancellor of the Exchequer Philip Hammond highlighted the economic cost of the decision to leave in Parliament Wednesday, citing central bank figures that suggest business investment is 20 percent lower than it expected before the vote. 

Bank of England Governor Mark Carney has called Brexit an “acid test” for how consumers and companies respond to the new environment, and the similarities give economists and investors all the more reason to pay attention to the latest twist and turns in the debate. “We’ve had 30 years of globalization and the U.K. is probably the best example right now of actively trying to reverse that,” said Daniel Vernazza, chief U.K. and senior global economist at UniCredit.

The stakes are high: According to calculations by Bloomberg Economics, close to $2 trillion globally is tied to trade flows that are at risk from greater protectionism.

Today’s Must-Reads

• Conservative Party MPs redoubled their efforts to force Theresa May to provide a clear timetable for her departure, even as they shied away from changing rules to make it easier for them to oust her.
• Stock watchdogs in the U.K. and EU remain at loggerheads over their plans for a no-deal Brexit, Bloomberg’s Marion Dakers reports.
• Nicola Sturgeon has launched a renewed drive for Scottish independence, with the first minister announcing Wednesday that she wants another vote on the matter within two years to protect the country from the consequences of Brexit.

Brexit in Brief

Leadership Battlegrounds | The furor over so-called 5G telecommunications networks, and Huawei’s potential role in them, is the latest example of how the Tory leadership war is spreading to all aspects of policy, Kitty Donaldson reports. Meanwhile, Bloomberg Opinion’s Alex Webb writes that Britain's embrace of the Chinese firm is really about Brexit.

Difficult Discussions | The government aims for an agreement with the opposition Labour party that would make a “customs arrangement” part of Britain’s future relationship with the EU, David Lidington, the de facto deputy prime minister, said in Parliament yesterday. Cross-party talks aimed at a Brexit compromise have been constructive, but it’s “very difficult,” he added.

Carney Successor | The U.K. has begun its search for the next Bank of England Governor, with the new chief set to take over from Carney early next year. Hammond has said he’s willing to look abroad again to find the right candidate, although he admits Brexit may deter some applicants. Liam Halligan writes in the Telegraph that the next Governor needs to be a Brexiteer.

Stuck on Hold | Speaking of Carney, the Canadian is unlikely to hike rates again before he leaves the BOE, according to the National Institute of Economic and Social Research. The think tank, which released its latest economic forecasts today, doesn’t see another rate increase until August 2020.

Taking Advantage | U.K. companies are making the most of the delay to Brexit, and are set to issue more pound bonds in April than in the first three months of the year.

More Defections | The Brexit Party secured another high-profile backer yesterday as Ann Widdecombe, the former Conservative shadow home secretary, announced she would stand as a candidate for Nigel Farage’s party at next month’s European elections. According to Bloomberg Opinion’s Therese Raphael, the brand new party’s ultimate aim is to realign British politics altogether.      

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To contact the editor responsible for this story: Anne Pollak at apollak@bloomberg.net, Leila Taha

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