Brexit Bulletin: Taking Back Control

Days to Brexit: 49

(Bloomberg) --

What’s Happening? After winning a stunning majority, Prime Minister Boris Johnson can free himself from almost four years of gridlock.

Johnson urged Britons to “take back control” during the 2016 referendum on European Union membership. In 2019, he told weary voters that only he could “get Brexit done” — and they handed him a resounding general election win. Thursday’s result makes Johnson the most powerful Conservative prime minister since Margaret Thatcher.

So what happens now? The size of Johnson’s parliamentary majority clears the way for him to take Britain out of the EU in January. The decisive win means he can also define Britain’s future relationship with the bloc. The key question is: What will that future look like

Brexit Bulletin: Taking Back Control

If Johnson wants access to the EU single market he will have to give up control in some areas — in particular taxation, labor and environmental standards. A big majority back home could marginalize hard-liners who dogged his predecessor, Theresa May, and allow him cut a deal that keeps the U.K. more closely aligned with the EU. (Whether he could do this and seal a “massive new trade deal” with Donald Trump’s U.S. is another matter.)

The EU is eyeing closer ties. French President Emmanuel Macron told reporters on Friday that the further the U.K. strays from the EU model, the more limited any trade agreement will be. “The more ambitious the deal they want, the higher the regulatory alignment should be,” Macron said. “Every time they depart from EU regulations, they will stray away from an ambitious accord.”

We don’t truly know what Johnson wants. A bare-bones free-trade deal? A more comprehensive pact along the lines the EU is suggesting? Once the U.K. formally leaves on Jan. 31 there will be just 11 months to conclude a full deal. As we have reported before, and as trade experts attest, this is a major hurdle; complex free-trade agreements take years to conclude, not months. Is Johnson truly prepared to risk a new “cliff-edge” at the end of 2020? Or would he grant EU nations access to U.K. fishing waters, for example, in order to meet the deadline — contradicting a promise he made to win votes in pro-Leave areas?

Armed with a bulletproof parliamentary majority, though, Johnson may have the options and authority to adapt and change his plans. It wouldn’t be the first time. His bet is that the logistics of negotiating a trade deal prove far less controversial than the act of leaving itself.

Today’s Must-Reads

Brexit in Brief

Red Wall Falls | Johnson’s electoral triumph saw Conservative candidates crash through Labour’s “red wall” across northern England and change the shape of British politics. Voters in many places that backed Brexit in 2016, such as Workington, Bishop Auckland, Bassetlaw and Blythe, rejected Labour, with many seats electing Conservatives for the first time in generations.

Brexit Bulletin: Taking Back Control

Stick With Us | Standing outside Downing Street this afternoon, Johnson spoke directly to those new Tory voters, pledging that his “One Nation” Conservative government would represent all their interests. He told those watching that it is time for “closure” on Brexit, and to “let the healing begin” as his government seeks a “new partnership” with the EU.

Markets Rejoice | The pound, stocks and corporate bonds all rose on news of the Tory landslide. Sterling broke past $1.35 before paring gains as the day progressed. The FTSE 250 share index soared to its highest point on record, and a gauge of regional credit risk fell to its lowest in more than a decade. “A lot of money has been waiting on the sidelines in the U.K.,” said Mark Nash of Merian Global Investors. “This result should see much of it deployed.”

Business Relieved | British business also breathed a sign of relief, pledging renewed investment as concerns dissipated about Corbyn’s plans to nationalize swathes of industry. Corporate leaders also expressed hope that Johnson’s strong position would allow him leeway in EU negotiations. “The content and shape of any new deal are much more important than simply the speed in getting there,” said Jonathan Geldart, director general of the Institute of Directors.

More Than Brexit | Clarity on Brexit is welcome, but the eventual direction of sterling assets will depend on the global and British economy and Johnson’s spending plans, Marcus Ashworth writes for Bloomberg Opinion.

Champagne in Mayfair | The 16 Brits on the Bloomberg Billionaires Index added $2.8 billion to their net worth on Friday amid a stock rally fueled by relief at Corbyn’s defeat. There were also celebrations at a champagne-fueled Mayfair dinner.

What About the Others? | Corbyn said he would stand down as leader, but made no apologies for his party’s manifesto, instead blaming Brexit for Labour’s defeat. Liberal Democrat leader Jo Swinson lost her Scottish seat overnight, but said she had no regrets over her party’s campaign. And Scottish National Party leader Nicola Sturgeon — winner of the best election reaction prize, 2019 — said she’ll push ahead with plans for a new referendum on independence. 

Want to keep up with Brexit?

You can follow us @Brexit on Twitter, and listen to Bloomberg Westminster every weekday.

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