May's Brexit Plan

[Nick Jones]

Depends where you sit. Working for a German company whose financial year ends on 30th June, we felt the consequences immediately after the vote through the drop in exchange rate - enough to tip us from a modest profit to a significant loss. Admittedly in part due to having a financial controller too dim and naive to foresee possible scenarios and plan for them, but no bonus for any of us and three (including financial controller) made redundant.

Still struggling as the factory fix the inter company rate now and it is not favourable even compared to the new range. Fortunately our main competitors are mostly in the same boat or we’d be closing our doors by now.  Fair to say our customers have noticed significant price increases.

Hammond definitely not independent. Carney more so but not sure his view of the real world is any clearer.

[zetecspit]

They sound like interior decorators....

I think their model would make a splitscreen Minor look modern.

[Chris W]

10 hours ago, oldtuckunder said:

The problem is that the predictions were what might happen if we left, not voted to leave, We haven't left yet! and out economy has already taken some significant hits  If we do drop out you might well find that those predictions are going to be close to the mark, if the warnings from Hammond and Carney yesterday are anywhere near the mark. And it will be zero satisfaction for any of us to say "told you so"

Alan

I think it is pretty much accepted that so called 'Project Fear' was all about what would happen in the immediate aftermath of a Leave vote.  The principle post leave event was the reduction in the value of Stirling but it was well documented that Stirling was overvalued for at least two years prior to the Referendum.  There is no doubt that the leave vote provided the shock to trigger the reduction but it is now a matter of speculation as to how long it could have continued at its pre referendum level. With the exception of investment the rest has proved not only wrong but also the wrong 'direction of travel'.

The latest predictions from the Bank of England (Carney) are not predictions at all, they have just been spun that way to suit Mrs May's agenda.  They were asked to stress test the absolute worst case scenarios and that is what they did.  An 8% reduction in GDP in one year would be unprecedented and ludicrous.  It is predicated on everything being bad and the Government taking no action to mitigate.  In short it won't happen.

[PeterC]

This forecast by academics is independent.

https://theconversation.com/the-economic-cost-of-brexit-is-unavoidable-but-that-doesnt-mean-its-not-worth-it-10791

and resembles Hammond's.

Anyone checked with tea leaves ?

Peter

[oldtuckunder]

8 hours ago, Chris W said:

 The principle post leave event was the reduction in the value of Stirling but it was well documented that Stirling was overvalued for at least two years prior to the Referendum. 

With the greatest respect it is rubbish that Sterling was overvalued, it was hanging in about the right place. Having been involved in a business that has traded with the USA since the mid 80's both selling to and buying from we always ran longterm forecasts at $1.55 to the pound, with a +/- 10% safety margin, which meant that if the rate stayed between 1.40-1.70  we didn't have to worry or re-budget very much.   There were periods where the pound was strong early 90's when we crashed out of the ERM, and periods where the dollar was weak 2003-2008 where the pound did over heat against the dollar, where we had to make adjustments.

If you remember far enough back to the 60's 70's then the default UK government action was "If the economy is screwed devalue the pound" since then with a floating pound the rule is "If the economy is screwed the markets will devalue the pound" 

A quick look at the following chart will show that we are at historic lows against an average since 1990 of 1.61, which if we were an exporting nation would be good news as it would make our goods more competitive, however we aren't we run a massive trade deficit so all we are doing at the moment is storing up a huge inflation bubble, that remarkably so far only a limited amount has been passed on to consumers, but only because the retailers know how fragile consumer spending confidence is at the moment. When someone fires the starting gun to say "game over we can't sell for zero profit" watch out it will hurt.

Alan

 

[PeterC]

Apply Alan's anlysis to the euro and we see why the economies of Greece, Spain etc have been trashed by a euro that is kept too strong for them by Germany.  Arguments for/against brexit must assess the likely trajectory of the eurozone, which looks to me distinctly iffy. Italian banks, rampant nationalism amongst the 27 states and consistenly poor growth all contribute huge uncertainty in the future of EU.  it may well turn out that brexit proves to be a safe haven in a fraction-ridden EU.

Peter

[oldtuckunder]

But Peter, we Aren't in the Euro!  so regardless of what happens in the Eurozone our economy gets hit equally if we are in or out of the EU. Your argument is about as meaningless as saying I think its about to rain so instead of standing in my neighbours garden I'll go and stand in my garden, if its going to rain your going to get wet!

PS UK Growth has fallen consistently behind that of the EU for several years now!  and our productivity growth so far behind that of the USA (that is the great export hope) that before long it will cost us more to make things here, let alone ship and make a margin than things retail for in the USA. Of course you could just hope that the pound keeps falling to compensate.

Alan

Edited November 30, 2018 by oldtuckunder

[PaulAA]

According to IMF data, the GDP in very single Eurozone country, including Greece, grew in 2017.  In the UK, it shrank.

Meanwhile, the news from G20 is that Donald Tusk has just stated:

“If this deal is rejected in the Commons, we are left with, as was already stressed a few weeks ago by prime minister May, an alternative: no deal or no Brexit at all. I want to reassure you that the EU is prepared for every scenario.”

No pressure, then.

Paul

[PaulAA]

1 hour ago, PeterC said:

Apply Alan's anlysis to the euro and we see why the economies of Greece, Spain etc have been trashed by a euro that is kept too strong for them by Germany.  Arguments for/against brexit must assess the likely trajectory of the eurozone, which looks to me distinctly iffy. Italian banks, rampant nationalism amongst the 27 states and consistenly poor growth all contribute huge uncertainty in the future of EU.  it may well turn out that brexit proves to be a safe haven in a fraction-ridden EU.

Peter

Peter

I understand your concern is about collateral damage, but even the wildest projections of future trade/growth see the UK economy heavily tied to the EU (and those parts of it within the Eurozone) almost indefinitely, so I'm not clear about the economic benefit of Brexit from the point of view of the future performance of the Euro.

Also, from outside perspective, it appears that the UK has a much more significant problem with nationalism that many countries in the EU.  Needless to say, I am wearing my tinfoil hat as I tap away at my keyboard in Europe's cradle of openness, tolerance and welcome... Poland.

Paul

[rhino_mac]

On 11/27/2018 at 4:32 PM, PaulAA said:

The size of the tariffs, Dave, and the impact they would have on trade.  This piece explains the probable consequences:

http://ukandeu.ac.uk/explainers/no-deal-the-wto-option/

Hey Paul! Nice to catch up again.

It's not just the tariffs or even the size. We trade with all EU states and have two factories in Poland. It's not the tariffs that scare us but the extra administration; Duplication of product registrations and safety assessments, dual labeling (one for UK with a UK responsible person address) and one for the EU (for the EU responsible person), change of classification under REACH from downstream user to importer (meaning costly raw material registrations), 200 sets of customs documents per day, delays at ports etc.
If it was simply a case of 6.5% on Bath Bombs (which is the current tariff) but we could make better trade agreements as promised (even though the EU has trade agreements with most of the world) then I'd leave in a heartbeat but it's not as simple as that. I don't think many people understood the impact on business through red tape - something our own government promised to cut.

[PaulAA]

Hey Rich, nice to see you over here!

That's a fair point and, my UK directorship fading into the dim and distant past, one I had overlooked.  But tariffs and administrative cost cannot but find their way through to retail prices and I think this is the main pain that UK customers - and Europeans ones to some extent - will feel.

Surprised to see you say that, bureaucracy aside, you'd leave in a heartbeat, though!

Paul

[rhino_mac]

Yeah, you caught me out there. I think I maybe typed that too fast and I was being a bit factitious. It didn't come across as I meant.

What I meant was that if I agree with democratic process and (even though I voted remain) accepted the referendum result, if it was just down to tariff's I would accept to leave the EU without any further comment on the matter (not leave in a heartbeat - even I annoyed myself when you pointed out I typed that). On the basis it isn't that simple, I think there is still a debate to be had to protect ourselves from the fall out from leaving that may people (politicians included) don't understand.

In reality, I'm very happy to be part of the EU as it stands today. No political system is perfect - I don't understand why people think we're held back by the EU as if our own government will unleash economic prosperity the moment we leave instead of bimbling on as they (and every other economy around the world) do. I think we're been mis-sold the idea of trade deals - the EU (and therefore the UK presently) has many - even with the USA. I don't see a mass influx of business to UK as a result of us leaving. Indeed, someone said we were seen as an English speaking gateway to Europe and I think that rings very true indeed.

I went to Lithuania on business last week and I wondered, as I queued for Passport control, if it would be the last time I stood in the EU citizens line. It was quit poignant 

Just out of interest, with Bath Bomb tariffs at 6.5%,  a product that retails at £2.49 would retail for about £2.88 given a 6.5% duty on raw materials and finished products once multiplied up to give distributor and retailers margins. It is significant as the duties get multiplied up the more people that need to make a margin throughout the supply chain. So for example, a typical margin in the gift trade would be 2.4 times cost excluding VAT (eg buy for £1 exc VAT, sell for £2.40 inc. VAT). The more people in the distribution chain, the more expensive that 6.5% gets.

So basically, my last post was nonsense. Thanks for pointing that out Paul!

[Chris W]

9 hours ago, PaulAA said:

According to IMF data, the GDP in very single Eurozone country, including Greece, grew in 2017.  In the UK, it shrank.

Meanwhile, the news from G20 is that Donald Tusk has just stated:

“If this deal is rejected in the Commons, we are left with, as was already stressed a few weeks ago by prime minister May, an alternative: no deal or no Brexit at all. I want to reassure you that the EU is prepared for every scenario.”

No pressure, then.

Paul

Hi Paul, that would be the IMF that were suggesting in 2015 that Sterling was up to 20% overvalued.  In this instance I prefer the ONS stat which puts 2017 GDP growth (not shrinkage) at 1.8%, the same as France and about 0.4% below the EU average.  This also tells you something about the size of the UK economy as many of the smaller countries had growth in the range of 6 - 7%..  It should also be noted that GDP is a measure of spending.  The Governments deficit reduction must be having some impact on GDP although I have no idea how much.

Regarding, Donald Tusk, it is hardly surprising that he makes this statement, it's almost as if he is on one side of a negotiation Mandy Rice-Davies had a quote for this situation.

In other news from the G20 in Argentina, apparently the Foreign Office only agreed to let Theresa attend if she had a 'minder' at all times.  His job is to stop her giving away the Falklands if she meets the Argentinian President.

[Chris W]

12 hours ago, oldtuckunder said:

With the greatest respect it is rubbish that Sterling was overvalued, it was hanging in about the right place.

I must bow to your superior anecdote, Alan, I'm no expert, I was just quoting the IMF and numerous Investment Banks!  It turns out that despite that fall in 2016, the market still considers Sterling overvalued.

Actually, I have some sympathy for your view as I can't really get my head round how the value of a currency can be anything other than the amount it currently trades at.  I guess it is to do with the fact that it is a tradable commodity for its own sake and doesn't exist in isolation.  I guess that is why, during the period of relative stability that you described, it wasn't just that the pound was weak or strong or the dollar was weak or strong, it was about how the market considered their relative strength or weakness.

In Peter's example of a pending Euro crisis, the strength of the Euro wouldn't automatically lead to an increase in Sterling value but it might, depending on market sentiment.

In my case (professionally) I'm in the fortunate position of not having to worry about it as we trade with the Euro zone in Euro and the rest of the world in Dollars.  As we are selling 'know how' we always have a trade surplus in both currencies.

 

 

[PaulAA]

9 hours ago, Chris W said:

Hi Paul, that would be the IMF that were suggesting in 2015 that Sterling was up to 20% overvalued.  In this instance I prefer the ONS stat which puts 2017 GDP growth (not shrinkage) at 1.8%, the same as France and about 0.4% below the EU average.  This also tells you something about the size of the UK economy as many of the smaller countries had growth in the range of 6 - 7%..  It should also be noted that GDP is a measure of spending.  The Governments deficit reduction must be having some impact on GDP although I have no idea how much.

Regarding, Donald Tusk, it is hardly surprising that he makes this statement, it's almost as if he is on one side of a negotiation Mandy Rice-Davies had a quote for this situation.

In other news from the G20 in Argentina, apparently the Foreign Office only agreed to let Theresa attend if she had a 'minder' at all times.  His job is to stop her giving away the Falklands if she meets the Argentinian President.

Hi Chris

I haven't made any reference to the IMF's political/commercial pronouncements. But they are one of the world's most reliable repositories of historic global data and, if it's good enough for the Economist and the FT, it's good enough for me.

GDP is not a measure of spending. The key is in the words: Gross Domestic Product. It therefore contains significantly more than just a country's spend and is a reliable like-for-like measure of a country's performance over a given period.

Yes, Tusk bats for the other side. But you may have noticed that he currently holds the keys you are after. Maybe worth noting what he says.

I'll leave the humorous observarions about May to you. I can't find much humour in the tragedy of the UK's last two premierships.

Edited December 1, 2018 by PaulAA

[PaulAA]

5 hours ago, Chris W said:

In my case (professionally) I'm in the fortunate position of not having to worry about it as we trade with the Euro zone in Euro and the rest of the world in Dollars.  As we are selling 'know how' we always have a trade surplus in both currencies.

You are Jacob Rees-Mogg and I claim my £5!

[Chris W]

9 hours ago, PaulAA said:

GDP is not a measure of spending. The key is in the words: Gross Domestic Product. It therefore contains significantly more than just a country's spend and is a reliable like-for-like measure of a country's performance over a given period.

Paul, you may think so but GDP is calculated:

Consumer Spending + Business Investment + Government Spending +/- Net Exports/Imports

It is a measure of the size of an economy as defined by the spending side. I agree that Exports are at Sales value but that's all.

Cheers

Chris

 

 

 

 

 

[Chris W]

9 hours ago, PaulAA said:

You are Jacob Rees-Mogg and I claim my £5!

Harsh.  I failed my Latin O Level!

[PeterC]

On 11/30/2018 at 2:15 PM, PaulAA said:

According to IMF data, the GDP in very single Eurozone country, including Greece, grew in 2017.  In the UK, it shrank.

Meanwhile, the news from G20 is that Donald Tusk has just stated:

“If this deal is rejected in the Commons, we are left with, as was already stressed a few weeks ago by prime minister May, an alternative: no deal or no Brexit at all. I want to reassure you that the EU is prepared for every scenario.”

No pressure, then.

Paul

The EU might be prepared fro no deal, but are the pepper growers of Spain, the vineyards of Italy and France or the car makers of Germany etc.?  Tusk and Brussels can play at being Mr Nasty but its the 27 nation states whose exports to UK that will suffer.  And they unlike Brussels have electorates at home.

 I cant see Tusk changing May's fixed mindset. She lost a junior minister today, one who had been negotiating brexit, an expert on the donwside of that vague 'poltical settlement' with insider knowledge.

Peter

 

Edited December 1, 2018 by PeterC

[Nick Jones]

The crux of it, whatever your basic position, is that you simply cannot unpick 30+ years of complex long-negotiated agreements, treaties and legislation between multiple parties in just a couple of years without getting blood and fur on the walls, floor and ceiling.  It is a really, really stupid thing to try and do and there will be very few winners and very many losers.

[oldtuckunder]

5 hours ago, PeterC said:

Tusk and Brussels can play at being Mr Nasty but its the 27 nation states whose exports to UK that will suffer. 

Peter why on earth do you think they are playing Nasty, all they are doing is offering us the same kind of deal they would offer anyone else who isn't a member of the EU, its as simple as that. We might like more, but if we do we will have to negotiate for it and pay for it. 

Its not being Nasty, its just being Fair.  If you don't think so, how many £10 notes will you let me have for £8 cash each, on the basis that we were both members of the TRR at the same time?

Alan

[PeterC]

19 minutes ago, oldtuckunder said:

Peter why on earth do you think they are playing Nasty, all they are doing is offering us the same kind of deal they would offer anyone else who isn't a member of the EU, its as simple as that. We might like more, but if we do we will have to negotiate for it and pay for it. 

Its not being Nasty, its just being Fair.  If you don't think so, how many £10 notes will you let me have for £8 cash each, on the basis that we were both members of the TRR at the same time?

Alan

Alan, One exmaple of nasty.The Science+Universities minister who resigned Saturday had experienced trying to negotiate UK involvement after brexit in Gallileo, a european GPS. UK had already invested £1.2 billion. The outcome: UK has been forced out of Gallileo.  He saw what the poltical statement would mean - continual servitude by UK to Brussels. Leaving UK open to veto by any one of the 27 in any negotiation is ludicrous, and May must  lose the vote.  Peter

https://www.theguardian.com/politics/2018/nov/30/brexit-uk-may-never-recover-12bn-invested-in-eu-galileo-satellite-system

 

Edited December 1, 2018 by PeterC

[Chris W]

3 hours ago, Nick Jones said:

The crux of it, whatever your basic position, is that you simply cannot unpick 30+ years of complex long-negotiated agreements, treaties and legislation between multiple parties in just a couple of years without getting blood and fur on the walls, floor and ceiling.  It is a really, really stupid thing to try and do and there will be very few winners and very many losers.

Hi Nick,

You may be surprised to find that I agree with you but that then takes us into a whole new discussion on the price of Democracy.

However, this thread was started by Paul, to get people's views on the May deal.  Broadly speaking, it seems that everyone thinks it is rubbish but as a pragmatist, the more I think about it, the more I wonder if Mrs May hasn't 'played a blinder'. I haven't read the WA but as I understand it...................

We will be leaving the EU on the 29th of March 2019. Democracy satisfied.

However, we will still be in (or have access, as if we were in) the Single Market and a Customs Union but not subject to Freedom of Movement.  We regain control of our waters and are out of the CAP.  We have to pay the Divorce settlement but no longer pay for Membership.  The price is that the ECJ will have some authority (but more limited than currently) we won't have 'a seat at the table' (but UKIP spent years telling us we had no influence anyway) and we won't be able to do Third Party trade deals.

Now here's the thing.  The above is for an implementation period of two years while we negotiate a Free Trade Deal, but if we can't negotiate a deal, it cannot be ended unless both sides agree. This gives us a veto on ending the arrangement, if doing so is not in our interest.

So if Spain says we want Gibraltar in return for an FTA, or France says we want your fish, we just say no, that's alright, we'll carry on as we are thanks.

What am I missing?

[DeTRacted]

"....it cannot be ended unless both sides agree. This gives us a veto on ending the arrangement, if doing so is not in our interest. ....What am I missing? "

And that is the sting in the tail which makes the 'deal' completely unacceptable. Essentially we are stuck with that arrangement - however disadvantageous it may turn out to be for the UK - until the EU finally agrees to let us out.  Our wishes would count for nothing.

[Rod1883]

Thanks Chris, that's a succinct summary.

I agree with Rob though, the veto works both ways, and whilst we're tied in - we cannot work on trade deals elsewhere. I like the fact that as per your summary Chris, Spain and France cannot play the Gibraltar or Fish cards, but we would be stuck in the interim arrangement forever unless all 27(?) other countries in the EU agree that interim arrangement be ended.

I recall Barnier I think (or it may have been Tusk, or even Juncker) saying something akin to 'nothing is agreed until everything is agreed'. It seems wrong in my eyes then that we are being kicked out of things like Gallileo whilst things are still to be agreed. I agree with Peter, the EU do seem to be being nasty with their negotiation, instead of respecting democracy and working to make the best deal for all involved. Of course it will be difficult unpicking 30 to 40 years of the relationship, but that is the job they have to do, and they should be seen to do it fairly or risk even more dissatisfaction with the political class.