Bank of England says Brexit transition desirable for UK, EU banks

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The Bank of England said a transition period after the Britain leaves the European Union would give banks more time to make orderly changes as Brexit poses risks to financial stability.

With UK due to leave the bloc in March 2019, the BoE’s Prudential Regulation Authority (PRA) said it faces heavy demands from Brexit fallout on banks and insurers.

BoE Deputy Governor and PRA Chief Executive Sam Woods said “some form of implementation period is desirable” between Britain leaving the bloc and start of new trading terms to “give UK and EU firms” more time to make necessary changes.

But he stopped short of saying what sort of transition he wanted in a reply to Nicky Morgan, new chair of parliament’s Treasury Select Committee, who asked him this month for his views on the design of such a period.

The UK government has not presented the EU with any firm request for a transition period as it still seeks internal consensus.

UK-based firms are not waiting for clarity and are announcing new hubs in the EU27 to be sure of serving customers there after March 2019 – and avoid the destabilising ruptures in financial links the BoE fears.

Woods had asked banks to spell out how they would cope in particular with a “hard” Brexit where Britain crashes out of the EU with no transition or trading deal.

In a letter to Morgan made public on Wednesday, he said 401 responses were received, which revealed “significant issues for many firms” and the BoE will reach a view on the plans in the autumn.

The submissions provided “further evidence” of risks the BoE had already identified, specifically relating to the continued servicing and performance of existing contracts and restriction on data transfers.

There could be a sharp rise in the number of insurance policies shifted from one country to another, a switch that involves the courts, he said.

“Re-structuring by firms to mitigate risks to their business will in general increase complexity.” Dislocation and fragmentation of markets could bump up costs and cut activity.

The BoE will need to ensure that supervising firms with links between the EU and a Britain outside the bloc, is still doable, he added.

The PRA faces having to authorise and supervise a significant number of additional firms, which could place a material extra burden on resources, Woods said.

London is home to branches of banks from continental Europe and they face having to become subsidiaries, meaning they would be directly supervised by the PRA.

Woods said the issues set out in his response to Morgan “pose a material risk” to the PRA’s objectives as a supervisor, and that this work is a top priority.

“It is incumbent on us to manage this burden but we may have to make some difficult prioritisation decisions in order to accommodate it,” Woods said.


Brexit: Race to host EU agencies relocated from London

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EU countries have until midnight to enter a race to bid to provide a new home for two agencies that will be relocated from the UK after Brexit.

The European Banking Authority and the European Medicines Agency, based in Canary Wharf in London, employ just over 1,000 staff between them.

The banking and medicines agencies are seen as the first spoils of Brexit by the 27 remaining members of the EU.

About 20 countries are expected to enter the bidding process.

Glossy brochures

There will be fierce competition to attract the agencies’ highly skilled employees, their families and the business that comes with them.

This includes 40,000 hotel stays for visitors each year.

Countries have printed glossy brochures, posted promotional videos online and hired lobbying firms.

The contest has pitched larger countries against smaller ones from across the EU.

The European Commission will assess the entries based on the quality of office space, job opportunities for spouses and transport links.

European ministers will use a complicated voting system to choose the winners in November.


House prices are heading for a huge crash – and that might not be such a bad thing

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For months now, my life has been filled with estate agents. Lucky me. Actually, although none of my best friends are estate agents, don’t let’s fall for the lazy stereotype: there are good and bad practitioners – it doesn’t take long to spot which is which.

Talk to them and you will hear a consistent refrain, experience the same bewilderment, taste a little fear.

They are struggling to make sense of what is going on in the “market”, insisting the media is always three to six months behind what’s going on in real life: that the true picture is potentially worse than the 2007 crash.

The caveats

Three caveats: these agents are in West London, an area hit particularly hard by Brexit-induced uncertainty (lots of nervous French people) and not necessarily reflective of the nation; secondly, that to even discuss a downward trend is tantamount to inducing it; thirdly, for many, a significant correction is a good thing – taking some warmth out of a prohibitively overheated scenario.

That said, here are some recent headlines: “The £29bn collapse – house prices fall in every part of Britain (except Wales)”; “House sales have fallen by nearly a third in some parts of UK”;  “Britain is on the brink of the worst house price collapse since 1990s: experts predict property costs could plunge by FORTY PER CENT” (the Mail on Sunday, this weekend);

Tangible correction

From London’s gentrified Hackney, to the North-East’s Hull, a “correction” is now tangible – and, many would argue, welcome, given how close prices are to all-time highs.

Just last month the Resolution Foundation think-tank estimated that those lucky enough to have bought in the 1990s and early 2000s benefited from a staggering £2.3trn windfall, not from buying and selling or paying off mortgages, but merely sitting pretty.

A “correction” is now tangible – and, many would argue, welcome For every lucky baby boomer, there is a despondent young person, despairing of getting on to the ladder.

To be fair to the Government, the introduction of staggered stamp duty taxes and measures such as Help To Buy were intended to aid first-time buyers, who have become ever more reliant on the bank of mum and dad, particularly given the new burden of student debts.

 

Bank of mum and dad

But the net effect of the long-term fall in real incomes (wage rises versus inflation) is now beginning to bite mum and dad too, despite historically low interest rates.

Plus, there’s that lack of confidence in our post-Brexit future. The corollary to low mortgage rates is historically low rates of personal savings and rising credit card debt. Any return to the negative equity nightmare of the early nineties would leave a scary number of households’ finances in an extremely precarious state. I hate that housing is regarded as “a market”.

For every buyer looking to be a developer or landlord there are so many more simply seeking a home of their own. A correction may help first-time buyers, yes, but what of the many other home-owners that have rightly or wrongly, become reliant on inexorably rising house values? In real life, we should be careful about what we wish for.

Stefano Hatfield (iNews)

 

 

 


Carmakers call for transitional EU deal

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The government must secure a transitional Brexit deal to protect the future of the UK car industry, a trade group has said.

The Society of Motor Manufacturers and Traders (SMMT) said Britain was highly unlikely to reach a final agreement with the EU by the March 2019 deadline.

That meant carmakers could face a “cliff edge”, whereby tariff-free trade was sharply pulled away.

It warned the industry would suffer without a back-up plan in place.

The EU is by far the UK’s biggest automotive export market, buying more than half of its finished vehicles – four times as many as the next biggest market.

UK car plants also depend heavily on the free movement of components to and from the continent.

The SMMT said any new relationship with the EU would need to address tariff and non-tariff barriers, regulatory and labour issues, “all of which will take time to negotiate”.

“We accept that we are leaving the European Union,” said chief executive Mike Hawes.

“But our biggest fear is that, in two years’ time, we fall off a cliff edge – no deal, outside the single market and customs union and trading on inferior World Trade Organization terms.

“This would undermine our competitiveness and our ability to attract the investment that is critical to future growth.”

He called on the government to seek an interim arrangement, whereby the UK stayed in the single market and customs union until a new relationship was brokered.

UK car manufacturing generated £77.5bn of turnover last year and accounted for 12% of all goods exports, according to the trade group.

It added that almost a million people were employed across the wider automotive industry.


Brexit negotiations begin: David Davis targets ‘historic’ deal

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Brexit Secretary David Davis will call for “a deal like no other in history” as he heads into talks with the EU.

Subjects for the negotiations, which officially start in Brussels later, include the status of expats, the UK’s “divorce bill” and the Northern Ireland border.

Mr Davis said there was a “long road ahead” but predicted a “deep and special partnership”.

The UK is set to leave the EU by the end of March 2019.

Day one of the negotiations will start at about 11:00 BST at European Commission buildings in Brussels.

Mr Davis and the EU’s chief negotiator Michel Barnier, a former French foreign minister and EU commissioner, will give a joint press conference at the end of the day.

The UK minister, who will be accompanied by a team of British officials, is expected to say: “Today marks the start of negotiations that will shape the future of the European Union and the United Kingdom, and the lives of our citizens.

“We want both sides to emerge strong and prosperous, capable of projecting our shared European values, leading in the world, and demonstrating our resolve to protect the security of our citizens.

“I want to reiterate at the outset of these talks that the UK will remain a committed partner and ally of our friends across the continent.

“And while there is a long road ahead, our destination is clear – a deep and special partnership between the UK and the EU. A deal like no other in history.”

The BBC has been told by European Union sources that the talks will follow the EU’s preferred pattern of exit negotiations first, with the future relations between the two sides – including the free trade deal the UK is seeking – at a later date.

Five major UK business bodies have come together to call for continued access to the European single market until a final Brexit deal is made with the EU.

In a letter to Business Secretary Greg Clark, they urged the government to “put the economy first”.

The letter is from the British Chambers of Commerce, Confederation of British Industry, EEF, Federation of Small Businesses and Institute of Directors.

On the eve of talks, Chancellor Philip Hammond issued a strong warning about the implications of the UK leaving the EU without a deal in place.

Mr Hammond told the BBC’s Andrew Marr Show that having no deal would be “a very, very bad outcome for Britain” but added that one that aimed to “suck the lifeblood out of our economy over a period of time” would be even worse.

He called for a transition deal to be in place to avoid businesses being affected by a “cliff edge” scenario as the UK leaves.

Mr Hammond has said the UK should “prioritise protecting jobs, protecting economic growth and protecting prosperity”.

 


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