Brexit Bulletin: Flashing Red

(Bloomberg) -- Today in Brexit: With Boris Johnson and Jeremy Hunt now vying to be prime minister, Bloomberg takes stock of three years of U.K. economic uncertainty.

What’s Happening?

Boris Johnson, the public face of Brexit, or Jeremy Hunt, the foreign secretary, will be the U.K.’s next leader, after fellow Conservative lawmakers whittled down the leadership contenders to a final pair.

Whoever wins will have the chance to re-shape the country’s politics and could dramatically alter its exit from the EU, due to take place in a little over four months’ time. Johnson and Hunt will now vie for votes among the 160,000 grassroots members of the U.K.’s governing Conservative party. A winner will be announced in late July.

The victor will take the reins of a nation whose economy has seen three turbulent years since the initial Brexit vote, as Bloomberg's anniversary edition of its Brexit Barometer shows.

Measuring four key indicators of economic health — activity, employment, inflation and uncertainty — and expressed in the language of the (in)famous British weather, it shows that the U.K. has spent most of the last 36 months in “cloudy” territory, with a recent deterioration to “rainy” as the prospect of a no-deal Brexit has grown.

It hasn’t all been gloomy. The worst-case scenario recession envisioned by the International Monetary Fund was avoided and unemployment recently hit a 45-year low. The broader activity and employment measures of the barometer were quite robust in 2018.

But now the warning signs are starting to flash red. Volatility in the stock market and sterling-euro exchange rates are sharply up in recent weeks, while mortgage approvals have slipped and the country’s trade deficit has widened. The weak pound has stoked inflation and uncertainty has weighed heavily on business investment. Firms opting to hire workers instead of investing in equipment is supporting employment but will hurt British productivity over the long term.

Will Britain now face the “thunderstorms” of a no-deal Brexit or the “partly cloudy” calm of a Brexit deal? That’s one for Johnson or Hunt.

Today’s Must-Reads

• How will Britain’s next PM fix Brexit? Bloomberg’s Alex Morales and Rob Hutton report on Johnson and Hunt’s plans.
• Many Tory MPs with diverging views on Britain’s withdrawal from the EU found what they were looking for on Brexit in conversations with Boris Johnson, Bloomberg’s Kitty Donaldson and Rob Hutton report.
• To beat Johnson to 10 Downing Street, Hunt needs to meticulously grill his rival on Brexit, Philip Collins writes in The Times.

Brexit in Brief

Starting Over | For all the U.K.’s leadership wrangling, the EU has a big choice to make too. As talks wrapped up at a summit in Brussels in the early hours of Friday, European Union leaders cast aside the formal candidates who’ve dominated the race to lead the next EU Commission and will start again from scratch.

Delay Hostility | Irish Prime Minister Leo Varadkar said Thursday there is “enormous hostility” among EU leaders to another Brexit delay, according to the Financial Times. He also said any bid to revise the terms of the Brexit deal would fail.

Moment of Reckoning | If Boris Johnson becomes PM he’ll need to get serious and be truthful about the trade-offs required to deliver Brexit, Bloomberg Opinion’s Therese Raphael writes.

Regulation Overhaul | Chancellor of the Exchequer Philip Hammond used his annual Mansion House speech on Thursday to set out plans for an overhaul of post-Brexit regulation of financial services in the U.K. He’s launching a review into how financial regulators work together after Britain leaves the EU, and will begin with a summit at his Downing Street office in the coming weeks. His speech was interrupted by climate protesters.

On the Markets | The Bank of England acknowledged increasing concerns about a no-deal Brexit as it kept interest rates on hold Thursday and cut its near-term growth forecast to zero.

Seat of Power | And finally, Britain’s next leader will once again be an alumnus of Oxford University. The Financial Times has a deep-dive today on the institution where Johnson and Hunt began their climb to power.

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To contact the editor responsible for this story: Adam Blenford at ablenford@bloomberg.net, Iain Rogers

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