Parliament challenges Johnson "no agreement" to leave the UK economy or hard lan

Posted by qianjiu on September 4th, 2019

The ultimatum of British Prime Minister Johnson "I prefer to make a temporary election without delaying the Brexit" has a dramatic opening on the first day of the resumption of parliament.

On September 3 (Tuesday) local time, the British Parliament returned to Westminster after the summer break to start a new session. The 15-20 Conservative Party opposition Labor Party, led by former Chancellor of the Exchequer Hammond, tried to force Johnson to postpone the Brexit deadline from October 31 to the end of January next year to temporarily avoid "no agreement." "Brexit.

With the uncertainty of Brexit always hovering, the exchange rate of the British pound against the US dollar fell again by 0.8% to 1.2063, and the exchange rate against the euro also fell to 1.0954. In addition, the August manufacturing PMI data reported on August 2, 47.4, fell for four consecutive months, the lowest level since 2012. According to data from the European Commission, the UK economic sentiment index fell to 92.5 in August, the worst level in seven years.

“The decline in business sentiment is clearly due to the extreme uncertainty about the future relationship between the EU and the UK,” Martin Braml, a trade expert at the Ifo Economic Research Institute in Germany, told the First Financial Reporter, “Some manufacturing industries (such as the automotive industry). The economic sector needs to face a difficult phase in the future, because the value chain may be interrupted and the company will move to the EU."

British politicians still can afford the repeated political game, but can the British economy still toss?

Detachment of the road

A cross-party opposition coalition led by Labour Party member Hilary Benn, former Conservative Party leader Hammond and David Gauke submitted a bill on September 2. After the passage of the bill, if the parliament has not reached an agreement on the Brexit agreement before October 19, Johnson must propose to the EU to extend the Brexit procedure for three months until January 31 next year.

Earlier, Johnson successfully forced the parliament to suspend next week until October 14. This not only reduced the space for parliamentarians to change the outcome of the Brexit, but also triggered the anger of Johnson's willingness to "abuse" the constitution. The probability of approval of this bill is also very impressive. In April this year, the opposition successfully joined forces to pass an anti-"no agreement" motion.

In this regard, Johnson said that the actions of the Conservative opposition will "destroy" his intention to get a better negotiation strategy for the Brexit agreement, because EU leaders will think that the parliament is determined to stop Brexit. He even said that the opposition who supported the legislation on the 3rd will be expelled from the party and will not delay the Brexit anyway. A senior Johnson official confirmed that if the government lost the vote on the 3rd, it would try to advance the election on the 4th and hold a temporary election on October 14.

However, the fixed-term parliamentary bill requires more than two-thirds of the support of parliamentarians to initiate a general election. On the 2nd, Labour Party leader Jeremy Corbyn has affirmed his hope that a temporary election will be held, so Johnson is very likely to do so. However, if for some reason failed to initiate a general election, Johnson's Brexit strategy and even his personal political career will be in doubt.

At present, investment bank Goldman Sachs has increased its probability of “no agreement” to leave the European Union from 20% to 25%. Last week, JPMorgan Chase also raised its forecasting probability for this outcome from 25% to 35%.

Foreign direct investment "dumb fire"

For a long time, the UK has acquired large foreign direct investment (FDI) in the past half century, due to its business-friendly environment and its ability to facilitate the sale of goods and services by foreign companies to the European Union. According to a report released by the United Nations Conference on Trade and Development in June, the total amount of foreign investment attracted by Britain over the years is second only to China and the United States.

However, according to fDiMarkets data, from June 2016 to June 2019, the number of jobs created by foreign investment in new production facilities or expansion of existing scales decreased by 19% compared to the same period from 2013 to 2016. Dropped to 183,000 people. In the same period, the amount of greenfield investment directly invested by foreign capital shrank by 30% to 83.4 billion pounds.

According to data released by the UK Department of International Trade in June, from March 2018 to March 2019, the number of greenfield investments and mergers in British overseas companies fell by 14% to 1,800, the lowest level since 2014.

Bram told the First Financial Reporter: "Low-level FDI is also caused by the high degree of uncertainty in Brexit. I don't think this uncertainty will be resolved soon, because the Johnson administration does not seem to seek another extension. ""

Ernst & Young's June report also pointed out that since the Brexit referendum, about one-fifth of overseas investors have cancelled or shelved their investment plans in the UK. Ernst & Young partner Andy Baldwin said: "The unrelenting uncertainty of the past three years has led investors to turn to other places because people have no patience to adopt a wait-and-see attitude toward the Brexit negotiations."

More importantly, the field of direct investment in the UK and the UK tends to focus on strategic industries such as communications technology and manufacturing, but Brexit seems to have lost help in these industries. According to fDiMarkets data, as of the first three years of June this year, the number of jobs created by FDI in the UK greenfield project in the field of communications technology has fallen by almost 47% compared with the same period before Brexit. From June 2018 to June this year, the number of jobs FDI provided to the UK manufacturing industry fell to its lowest level since 2003.

For example, Nissan Motor Co., Ltd. withdrew its plan to produce the latest X-Trail model at the Sunderland plant in February this year. Companies such as Matsushita and Sony also announced that they would relocate their European headquarters from the UK to the Netherlands.

Bram told the First Financial Reporter: "Even after the Brexit, I don't think foreign direct investment will recover soon, because many foreign companies have previously used the UK as a stepping stone into the EU's single market. These days are over. ""

Can consumption support the economy?

If the investment is dumb and the production is sluggish, can the third-horse “consumption” of economic growth play a role in supporting the economy?

With the stalemate in Brexit, there has been two trends in the mentality of British consumers. On the one hand, they have confidence in personal finances on the one hand, and they are not optimistic about the prospects of the British economy on the other. For example, the UK's official statistics office data showed that its second-quarter gross domestic product (GDP) growth contracted for the first time in seven years, but household consumption increased by 0.5% in the same period.

However, the rapid political uncertainty has indeed curbed the urge to make large financial expenditures. According to a study by the Bank of England at the end of August, the UK has lost 3% of its national income since the Brexit vote.

In the EU Economic sentiment index, the UK consumer confidence index fell from -6.9 in July to -11.4 in August. The retailer confidence index fell from -11.7 to -29, well below the long-term average of 1.3 for this data.

In the real estate market, housing prices in southeast England continued to fall year on year, and many investors hope to wait for home prices to be more stable before making a decision, which has a knock-on effect on the sales of household goods. In the automotive market, according to data from the Automobile Manufacturers and Dealers Association (SMMT), UK car sales fell for the fifth consecutive month in July, and new car registrations fell to the freezing point in 2012.

In addition, although the overall employment data is still considerable, this does not mean that all families are prepared to withstand the impact of Brexit, especially the “no agreement” to leave the EU. Gertjan Vlieghe, an outside member of the Bank of England's Monetary Policy Committee, said the UK's low savings rate made him "worried about the family's vulnerability to income or employment."

Indeed, the stagnation of income growth in the past decade has made many low-income people unable to prepare for it. According to TheResolutionFoundation, about 60% of households have no savings at all, and many households are already cutting spending sharply, lacking the economic room to buffer higher spending. At the same time, the think tank believes that even if the unemployment rate rises slightly in the future, young workers and employees with insufficient academic qualifications will be affected. Many people's current contracts are not guaranteed.

In this regard, Bram told the First Financial Reporter: "I believe that in the case of hard Brexit, there will be large deficit spending. The exchange rate will adjust and stimulate exports, and the size of government debt, which accounts for about 80% of GDP, allows the UK to Deficit spending in the next few years."

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