Economy

Analysis: UK’s Brexit woes threaten another flagship policy – levelling-up

Published

1 week ago

June 23, 2022

Analysis: UK's Brexit woes threaten another flagship policy - levelling-up

By Andy Bruce

LONDON (Reuters) – Dashed hopes, so far at least, that Brexit would tilt Britain’s economy towards growth driven by trade and investment are threatening another of Prime Minister Boris Johnson’s flagship policies: “levelling up” the regions outside of London.

Six years on from the vote to leave the European Union, the classic low-productivity British model of growth driven by consumption, supported in part by rising house prices, looks as strong as ever.

Britain has missed out on much of the global recovery in goods exports as economies re-opened from COVID-19 lockdowns, leaving it bottom among Group of Seven rich industrialised nations by this measure over the last 12 months.

The Resolution Foundation think tank this week said that lacklustre performance reflects a more closed economy since Brexit.

It also represents a missed opportunity for Johnson’s levelling-up agenda, which aims to reduce regional inequalities.

Had British goods exports grown in line with the average among the other six countries in the G7, they would have been worth around 38 billion pounds ($47 billion) more during the year to April 2022, based on a simple extrapolation.

This represents several billions of pounds of lost revenue for British factories and by extension the regions outside of London, since around 95% of manufacturing output takes place outside the capital, according to 2017 official data.

Manufacturing comprises only about 10% of British economic output overall.

But it is a key driver of growth and investment in many of the parts of England and Wales that voted heavily to leave the EU in 2016, such as the East Midlands and North East regions.

Unless Britain can meaningfully improve its trade performance, it could mean more missed opportunities to level up.

“The regions that probably asked for Brexit are the most likely to have seen the biggest impact negative impact from trade,” said Flaheen Khan, senior economist from the Make UK manufacturing trade group.

On Wednesday the Resolution Foundation said Brexit was unlikely to result in a big restructuring of the main sectors of Britain’s economy – but it would have consequences for levelling-up.

“Our assessment finds that the North East, one of the poorest regions in the UK, will be one of the hardest hit, and that Brexit will increase its existing – and large – productivity and income gaps,” the think tank said.

Estimates of regional economic growth hint at the scale of the opportunity already lost.

In the first quarter of 2022, London’s economy – dominated by services firms – was 2.6% larger than its level of late 2019, before the onset of COVID-19.

By comparison, no other regional economy in the United Kingdom except for Northern Ireland had fully recovered its pre-pandemic size.

GETTING ON WITH IT

Proponents of Brexit say it is a long-term project that cannot be judged over the space of a few years, before the benefits of an independent trade and regulatory policy become fully apparent.

“Regurgitations of Project Fear don’t seem to get anyone anywhere,” said Britain’s minister for Brexit opportunities, Jacob Rees-Mogg, of this week’s Resolution Foundation report.

Britain’s government wants to boost exports of goods and services to reach 1 trillion pounds per year in current prices by the end of the decade, up from their pre-pandemic level of 700 billion pounds.

The highest rate of inflation in the G7 is likely to be a big driver behind meeting that goal but an improved underlying trade performance would go a long way to boosting economic activity across the United Kingdom.

Businesses, however, need more help to get there, the British Chambers of Commerce said.

It pointed to five practical measures that would boost trade with the EU which accounts for more than 40% of British exports, ranging from less red tape for food exports and a sales tax deal for small businesses trading digitally with the EU to arrangements for markings and testing of industrial goods.

“Businesses in the UK and EU still have good relationships and trust each other. We need decision-makers to follow our lead and negotiate practical improvements to the Brexit trade deal,” said William Bain, head of trade policy at the BCC.

Khan from Make UK said part of the problem for policymakers was that manufacturers had different needs in different parts of the country, with companies in the south of England seeking more spending on digital infrastructure, while those in the north were demanding better transport links.

One thing that is shared across the country is an acceptance that Brexit is now an economic reality, for better or worse.

“In an ideal world, trade would be frictionless, but they’ve accepted that’s not going to happen and most businesses, despite the impact, are getting on with it,” Khan said.

($1 = 0.8148 pounds)

Economy

Futures rise as easing China COVID curbs lift travel, leisure stocks

Published

4 days ago

June 28, 2022

letizo News

Futures rise as easing China COVID curbs lift travel, leisure stocks

By Shreyashi Sanyal

(Reuters) – Travel and leisure shares propped up U.S. stock index futures after China relaxed some COVID-19 quarantine requirements for international travelers, raising hopes of a revival in global growth.

Airlines, cruises, casinos and hotels were among the gainers in premarket trading after China’s slashing of the quarantine time for inbound travelers by half boosted hopes of a big jump in international travel and spending.

Shares of Walt Disney (NYSE:DIS) Inc rose 2.5% to top the list of gainers on the Dow Jones Industrial Average, after the company’s Shanghai Disney Resort said it would reopen the Disneyland theme park on June 30 after being shut for more than three months.

Spirit Airlines (NYSE:SAVE) and American Airlines (NASDAQ:AAL) Group Inc were the biggest gainers in the sector, rising 4% and 2% respectively.

Melco Resorts jumped 10% and led the rise in the casino sector, closely followed by Wynn Resorts (NASDAQ:WYNN), MGM Resorts (NYSE:MGM) International.

Wall Street’s main indexes started the week on soft footing after worries of surging inflation and an aggressive Federal Reserve dominated sentiment amid few market moving catalysts till the start of earnings season in two weeks.

Investors are now looking at data to determine whether the economy can withstand large interest rate hikes by the U.S. central bank to stamp out inflation.

A survey from the Conference Board is expected to show its consumer confidence index slipped to a reading of 100.4 in June, from 106.4 in May, at 10 a.m. ET.

The S&P 500 and the Nasdaq are set to post losses in June and are on course to log two straight quarterly declines for the first time since 2015.

At 6:49 a.m. ET, Dow e-minis were up 175 points, or 0.56%, S&P 500 e-minis were up 20 points, or 0.51%, and Nasdaq 100 e-minis were up 52.25 points, or 0.43%.

Nike Inc (NYSE:NKE) shed 2.8% as it forecast first-quarter revenue below estimates on expectations of more discounts and pandemic-related disruptions in China, its most profitable market.

Occidental Petroleum Corp (NYSE:OXY) climbed 3.1% after top investor Warren Buffett raised stake in the shale producer.

China ADRs also rose on Beijing easing its COVID curbs, with e-commerce firms Alibaba (NYSE:BABA).com, JD (NASDAQ:JD).com and Pinduoduo (NASDAQ:PDD) up between 1.2% and 1.4%

Economy

Euro below $1.06 as Lagarde keeps July policy options open

Published

4 days ago

June 28, 2022

letizo News

Euro below $1.06 as Lagarde keeps July policy options open

By Saikat Chatterjee

LONDON (Reuters) – The Aussie and the Canadian dollar climbed on Tuesday on firmer oil prices while the euro held below $1.06 as European Central Bank (ECB) President Christine Lagarde offered no fresh insight on the central bank’s policy outlook.

The ECB is widely expected to follow its global peers by raising interest rates in July to check soaring inflation though economists are divided on the magnitude of the rate hike to protect a struggling economic recovery due to high oil prices.

Oil prices are up 10% in barely a week on supply constraint concerns with Brent crude holding above $117, pushing the Canadian dollar and the Australian dollar up 0.3% and 0.4% respectively. [O/R]

“Oil is helping the Norwegian crown and the Canadian dollar to outperform and the euro is again running into resistance at the 1.06 level,” said Kenneth Broux, an FX strategist at Societe Generale (OTC:SCGLY) in London.

The euro held below $1.06 after the ECB’s Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations.

Money markets are pricing in about 238 basis points (bps) of cumulative rate hikes by mid-2023 compared to around 280 bps two weeks ago.

Broader currency market moves were contained in a big week for markets in economic data terms. German inflation figures are due on Wednesday, French data on Thursday and euro zone numbers on Friday.

At the other end of the dial, higher oil prices caused the partially convertible Indian rupee to open at a record low, and fall further to 78.67 per dollar.

The U.S. dollar index struck a two-decade high of 105.79 this month and was last steady at 103.93.

Elsewhere, the offshore Chinese yuan moved higher after China reduced COVID quarantine for international travellers.

Economy

China’s economy recovering but foundation not solid, premier says

Published

4 days ago

June 28, 2022

letizo News

China's economy recovering but foundation not solid, premier says

© Reuters. FILE PHOTO: Chinese Premier Li Keqiang is seen on a screen as he attends a news conference via video link after the closing session of the National People’s Congress (NPC) in Beijing, China March 11, 2022. REUTERS/Ryan Woo

BEIJING (Reuters) -China’s economy has recovered to some extent, but its foundation is not solid, state media on Tuesday quoted Premier Li Keqiang as saying.

China will strive to drive the economy back onto a normal track and bring down the jobless rate as soon as possible, Li was quoted as saying.

“Currently, the implementation of the policy package to stabilise the economy is accelerating and taking effect. The economy has recovered on the whole, but the foundation is not yet solid,” Li was quoted as saying.

“The task of stabilising employment remains arduous.”

China’s economy showed signs of recovery in May after slumping the previous month as industrial production revived, but consumption remained weak and underlined the challenge for policymakers amid the persistent drag from strict COVID-19 curbs.

China’s nationwide survey-based jobless rate fell to 5.9% in May from 6.1% in April, still above the government’s 2022 target of below 5.5%.

In particular, the surveyed jobless rate in 31 major cities picked up to 6.9%, the highest on record. Some economists expect employment to worsen before it gets better, with a record number of graduates entering the workforce in summer.

Li vowed to achieve reasonable economic growth in the second quarter, although some private-sector economists expect the economy to shrink in the April-June quarter from a year earlier, compared with the first quarter’s 4.8% growth.