Brexit Bulletin: Place Your Bets

Days to Brexit: 7

(Bloomberg) --

What’s Happening? A boost for the U.K. economy as political risk takes a back seat, for now.

One week before Brexit day, Friday morning brought good news for the U.K., with a closely watched index of output across the whole economy hitting heights not seen since 2018.

IHS Markit’s purchasing managers’  index jumped in the wake of Boris Johnson’s decisive election victory last month. With the threat of a no-deal Brexit gone, and an orderly transition now assured — until the end of 2020, at least — businesses are able to relax a little. The uncertainty of 2019 has eased.

The story isn’t over yet. The jump in confidence wasn’t quite enough to wipe out prospects of a Bank of England interest-rate cut on Jan. 30. Dan Hanson of Bloomberg Economics reckons it “should be enough to deter” the BOE, and IHS Markit concurred. But pound traders didn’t entirely unwind their bets, pricing in a greater-than 50% chance of a cut.

Next Thursday’s BOE announcement will be Mark Carney’s last rate decision as governor, and comes the day before the U.K. formally leaves the European Union. Carney’s own comments recently sparked talk of a cut, with the Canadian suggesting new stimulus — including rate cuts — could be a useful weapon in the quest to improve the U.K.’s perennially unimpressive economic productivity. 

Much will change in the coming months, with a post-Brexit budget in March setting the fiscal tone and Johnson’s government pushing ahead with domestic reforms.

Nevertheless, if negotiations on the future U.K.-EU relationship run into trouble, businesses could soon find political risk clouding their prospects once again.

Beyond Brexit

• Britain and America suddenly seem to be fighting all the time, Tim Ross reports.
• Goldman Sachs will no longer take companies public if they have all-white, all-male boards.
• Scandal-hit Boeing is testing its biggest-ever plane, the $442.2 million 777-9.
• With Jakarta sinking fast, Indonesia is moving its capital to the jungle.

Brexit in Brief

Signed and Sealed | There were awkward smiles this morning as European Commission President Ursula von der Leyen and Charles Michel, President of the European Council, signed the Brexit deal ahead of its final journey to the European Parliament.

Business Hopes | U.K. business is lobbying for a say in shaping Britain’s post-Brexit immigration system. In an open letter to Home Secretary Priti Patel, the country’s five largest business organizations and about 30 trade associations said any new regime needs to provide access to required skills and labor, while also curbing the inward flow of people.

Buy Signal | Coutts & Co, the 328-year-old private banker to Queen Elizabeth II, is bullish on U.K. equities after Brexit, calling them “unloved, undervalued, and under-owned” since the 2016 referendum. 

New FCA Head | Christopher Woolard has been named as temporary head of the Financial Conduct Authority as Andrew Bailey departs to become governor of the Bank of England. The FCA is at the forefront of overseeing European firms trading stocks, bonds and derivatives in U.K. markets and has sought to maintain cross-border access following Brexit.

Working Together | The EU and 16 other nations including China and Brazil formed an alliance to settle trade disputes after the U.S. scuttled a World Trade Organization appellate process.

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Weekend Reading | A couple of contrasting opinions to end the week: Author Louis de Bernieres says the loss of British sovereignty underpins his belief in Brexit; and Guardian columnist Rhiannon Lucy Coslett on how Brexit means she can no longer visit a Wetherspoons pub.

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To contact the editor responsible for this story: Caitlin Morrison at cmorrison59@bloomberg.net

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