July 7, 2020, 14:19

Debate Over Future of UK Economy Heats Up Ahead of Hammond’s Spring Statement

Debate Over Future of UK Economy Heats Up Ahead of Hammond’s Spring Statement

British Chancellor of the Exchequer Philip Hammond is scheduled to deliver his semi-annual budget address this week amid an intensifying debate over the future of Brexit and the UK’s economy – ranging from doom and gloom to quite upbeat projections.

Kristian Rouz — Chancellor of the Exchequer Philip Hammond is set to deliver his Spring Statement on governmental finances on 13 March, roughly two weeks ahead of the planned Brexit deadline.

The Chancellor’s message comes amid contradictory macroeconomic reports, ranging from reflecting solid job figures and relatively robust GDP growth, to sounding the alarm over a possible flight of investment and financial sector fallout in case of a “no deal” Brexit.

In light of this, the most important question of the UK’s GDP growth trajectory in the near-to-mid-term looms large.

According to a report by the New Financial think tank on Monday, the British economy could lose up to $4 billion post-Brexit, as roughly 275 financial sector enterprises have moved part of their assets to EU jurisdictions. The estimated cost of the transferred funds stands at $1.2 trillion.

Ireland’s capital of Dublin was the main destinations of such relocations, with 100 firms moving assets there, while 60 moved to Luxembourg, 41 to Paris, France, and 40 to Frankfurt — the home of the European Central Bank (ECB). The Dutch capital of Amsterdam accounted for an additional 32 relocations.

New Financial additionally said at least 5,000 financial sector professionals have also left the UK for the same destinations over the past few months in anticipation of a possible “no deal” Brexit.

READ MORE: UK Economy Slows Amid Brexit Turmoil, Still Set to Outperform EU

“Business will continue to leak from London to the EU, with more activity being booked through local subsidiaries”, William Wright, the think tank’s founder and managing director, said. “This will reduce the UK’s influence in European banking and finance, reduce tax receipts from the industry, and reduce financial services exports to the EU”.

However, many British Conservative MPs, along with some experts, disagree with New Financial’s assessments. They say investment from non-EU countries, ranging from China to Norway, is poised to increase over the coming months, and the City of London is set to gain greater prominence as the global financial hub for transactions originating primarily from Asia.

According to a report from accounting giant Grant Thornton International, China’s 750 biggest enterprises domiciled in the UK grew their revenue by an average 11.6 percent last year, to some $90 billion. This has encouraged an ongoing rise in the influx of Chinese capital into the UK.

“Attractions such as a stable political, legal and social environment endure, while a weak pound and an increasingly difficult environment for Chinese investors in the US and, to some extent, Europe add to the UK’s appeal”,  experts at Grant Thornton said.

Additionally, Norway’s sovereign wealth fund has announced plans to ramp up investment in the UK — regardless of the Brexit risks. The $1-trillion money machine is considering 30-year investments in British real estate and retail, as well as the UK’s government debt — in the face of the UK’s improving state finances.

READ MORE: Brexit Worries: Consumer Spending Drops Despite Wage Growth, Solid Labour Market

“We foresee that over time that our investments in the UK will increase”, the fund’s chief executive Yngve Slyngstad said.

For his part, Chancellor Hammond is expected to tout improved tax receipts, solid labour market, and resilient business activity — along with rising exports — in his Wednesday address. His message is expected to reassure investors about the economic and political stability in the UK, despite the ongoing heated discussions over the future of Brexit in the Commons.

Hammond’s message will also take place the day after the MPs vote for a second time on a proposed Brexit deal. The Tories have said — if PM Theresa May’s proposed accord has not changed — regarding the Irish backstop — they will vote it down yet again, after which Labour is expected to push to rule out a “no deal” Brexit in a separate vote.

This might suggest a politically tumultuous few weeks in Westminster, but experts don’t believe any outcome of Brexit deliberations could deal severe damage to the UK’s economy and financial sector.

“We are very well prepared for whatever comes from a Brexit situation”, David Schwimmer, chief executive at the London Stock Exchange, said.

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