August 16, 2016
Brexit postponed? Not really.
Coming back from the holidays, we noted that the Brexit debate has really not gone anywhere during the silly season either. There has been a story in the Sunday Times that ministers are finally waking up to the complexity of the Brexit task ahead, and that Theresa May may not trigger the Art 50 procedure until late 2017, which would point to a Brexit date of late 2019. We think this is plausible, more or less. The argument for a small delay is a generalised lack of readiness. They don't have the people in place to do the negotiations, nor do they know what to negotiate.
There is essentially a time window of about one year - all of 2017 - during which this can be resolved, as we assume that May wants to complete the procedure before the scheduled 2020 elections. As we have argued before, there really is not much point in starting a discussion before the French presidential elections in May 2017. The German election are another agenda point, but less important unless the SPD tries to push for hard Brexit conditions.
We noted a comment from Andrew Grice in the Independent who thinks that the Art 50 trigger would happen in January or February. He says - rightly in our view - that May is not going to turn back on her commitment to Brexit, as it would be political suicide for her. He quotes a Downing Street source as saying: "We are all Brexiteers now". Also, the Conservatives' small majority of twelve means that she can hardly afford to alienate her eurosceptic backbenchers. That said, Grice sees problems ahead - lack of preparedness and inter-ministerial rivalries. But none of this will stop the actual Brexit.
There are two further articles that caught our attention. Brian Bell and Stephen Machin have looked at the relationship of wage inequality and the Brexit vote. It is already well established that constituencies with low median wages were more likely to vote for Brexit, but they also address the question whether Brexit is going to make wage inequality better or worse. Their conclusion is ambiguous. The negative trade shock will affect manufacturing most of all, and this might exert downward pressure on working-class wages. However, the negative impact of Brexit on the City of London could produce a fall in income among high earners as well. We believe that reduced reliance on finance for economic growth is a potentially positive economic effect of Brexit - that has hardly featured in the debate.
We also noted a statistic published yesterday that UK house prices fell 2.6% during July, according to Rightmove, an online property listing company. There is traditionally a summer lull in house prices, and the experts quoted in the article say that it was too early to assess the impact of Brexit on the property market, but we would be surprised if the market were to shake off Brexit without a trace.