Aurelia Butler

It feels like this has been a week of gloomy introspection as the UK confronts the grinding reality of its post-Brexit bind: persistent inflation, stagnant growth and entrenched battles over public sector pay and really no particularly good ideas about what to do about it.Obviously, everyone agrees the economy needs to grow faster, but the launch of Liz Truss’s Growth Commission this week was long on diagnosis (global trade has stagnated over the last 20 years) and short on remedies, beyond a promise to model the benefits of smarter deregulation.My colleague Robert Shrimsley wrote an incisive column exploring the internal conflict this has created in the Tory party between Trussite ideas for growth, Govean desire for place-making and the orthodoxies of “Osborneomics” espoused by the current occupants of 10 and 11 Downing Street.Nothing is ever entirely all about Brexit, but this being the ‘Britain After Brexit’ newsletter, I’ll focus on the bits that are.Robert writes that Brexit emerged from the economic malaise that followed the 2008 financial crisis and a sense that the traditional market economics in which the Conservative party had long reposed its faith wasn’t delivering sufficiently broad-based prosperity. Brexit was therefore a “reaction to that failure”, with Boris Johnson’s idea being that the economic shock of Brexit would be countered by “investment in skills, infrastructure, science and public services” which was then kiboshed by the Covid-19 pandemic and its wrecking of public finances.Back-to-front thinkingThat’s a reminder of quite how obviously back-to-front the original thinking was — deciding that Brexit, onshoring and economic nationalism would really be a tonic for the British economy when nearly 50 per cent of UK trade goes to the EU.Johnson himself, in his first big Brexit speech in Greenwich, came close to acknowledging as much. The UK was embarking on a solo mission to boost its global trade at a time when geopolitics and rising mercantilism had “choked” the global trading system.As Johnson rather forlornly observed: “Trade used to grow at roughly double global GDP — from 1987 to 2007. Now it barely keeps pace.” Hardly a propitious moment to launch ‘Global Britain’.And trade is important — as this UK government analysis from 2021 explains — when making the case for faster export growth while highlighting the growing impact of rising ‘non-tariff barriers’ (the same barriers that David Frost refused to acknowledge as he negotiated the TCA and continues to deny now).The Department for International Trade analysis found that goods exporters have a “productivity premium” of 21 per cent, with exporting firms paying higher wages and showing more resilience to economic cycles than non-exporting firms. “This means higher-skilled, higher-paid jobs for people across the UK and a more competitive domestic economy,” wrote Richard Price, the chief economist at the then DiT.Post-Brexit trade recordThis is a political point that the Labour party has thus far not dared to try and land on their Tory opponents: Brexit has hammered UK goods trade (goods exports were 17 per cent below pre-Trade and Co-operation Agreement levels in Q1 2023) and that blow lands hardest in the Midlands and the North, where manufacturing provides a greater proportion of high-productivity jobs.I’ve written recently, with the help of the Resolution Foundation, about UK high-productivity manufacturing being squeezed out of EU supply chains, but this week the British Chambers of Commerce launched its Trade Manifesto setting out what needs to be done to get trade back on track.It starts by flagging that the post-Brexit record is not good. As the BCC says, exports from small and medium-sized enterprises “continue to languish”. In the second quarter of 2023, half of all SME exporters (50 per cent) saw no change in overseas sales, and almost a quarter (24 per cent) reported a decrease.The BCC manifesto is full of good ideas about how to help trade: digitising documents, better communications with business, capitalising on UK strength in greentech and creating an exports council to try to join up hopelessly fractured Whitehall trade machinery.But even though (for understandable political reasons) Brexit is only actually mentioned once in the 20-page document, it is the EU-sized elephant in the room since — as the document notes — “42 per cent of our goods and services exports still go to the EU”.In her remarks, Shevaun Haviland, the director-general of the BCC, doesn’t shy away from this. As she says: “We need to look again at ways of improving trade with the EU. It remains our biggest trading partner, but firms continue to express huge frustration with the complexity and costs involved — which go beyond what they face elsewhere.” I’ll be exploring in the coming days elsewhere in the FT why that complexity and cost is going to increase, not decrease, as the EU continues to diverge from the UK, bringing in a host of new regulations on carbon border taxes, supply chain due diligence and other environmental areas, like plastic waste management.The BCC goes on to list what needs to be done to try to reduce these short, medium and long term frictions but only a cursory glance at the first list (see page 17) makes you realise how tough this is going to be.It includes an agreement on VAT co-operation, for example, to reduce the need for UK companies to have a “fiscal intermediary” in the EU — something the UK has already requested but the EU has decided is not in its best interest. It says the EU should extend the deadline for the rules of origin requirement on electric vehicles — but the Commission is dead set against that, not least because it wants to send the message that the TCA is not open for endless renegotiation.And it suggests the UK should work on deals for the mutual recognition of professional qualifications which is provided for in the TCA. However, it’s worth recalling that Canada’s basic trade deal with the EU has the same facility and has managed a single deal on architects and that took nine rounds of negotiations.There are things the UK can do for itself like give up on its UKCA mark, make sure trusted trader schemes are accessible as we bring in our own border for EU imports from October, expedite the creation of a ‘single trade window’. But this will only marginally shrink the inbuilt disadvantages facing UK firms compared to competitors in the EU single market.If the Labour party is serious about delivering growth and investment where the Tories have failed, then sooner or later it will have to ask itself whether it can deliver this without actually engaging substantively on the challenges caused by Brexit — and what would move the dial in Brussels in order to begin addressing them.Brexit in numbersThis week’s chart comes from the European Movement Ireland’s annual survey of attitudes towards the EU, which this year also covers Northern Ireland for the first time.That means there are no previous surveys to compare this year’s findings to, but I was struck by the answer to the question from Northern Ireland voters about where they felt the closest connection (political, social or cultural) — Europe, Great Britain or the US.Nearly two-thirds (60 per cent) of Northern Ireland voters chose “Europe” as their political and cultural lodestar — double the number that chose “Great Britain”, which raises a bunch of fascinating questions. This is not so much about a Border Poll (which is still some way off, although of course a vote for unification is also a vote to rejoin the EU) but more about the extent to which Brexit and the Windsor framework inevitably orientates Northern Ireland towards the EU.Kathryn Simpson, associate professor in EU Politics & Economics at the University of Keele, says the findings perhaps reflect the fact that Brexit has actually increased the everyday presence of the EU in the North.She argues that even though Northern Ireland voted to remain by 56 per cent to 44 per cent, it had widely expected to be higher.“But the presence of the EU in Northern Ireland has become so much stronger post-Brexit, because the EU is now perceived to have more active influence on day-to-day life than when the UK was a member of the EU,” she added.That said, one notable finding in the survey (done by Lucid Talk in Northern Ireland and Amárach Research in the Republic) is that contrary to the UK, younger voters in the North identify less strongly with the EU than their older counterparts.Among voters over 25, around 60 per cent identify with “Europe”, with only 30 per cent choosing “Great Britain”, but among 18 to 24-year-olds that gap shrinks markedly, with only 48 per cent identifying with “Europe” and 40 per cent for “Great Britain”.Katy Hayward, professor of political sociology at Queen’s University Belfast, said the split among the younger generation reflects the fact that Brexit has politicised “Europe” as an issue — both negatively and positively — given the EU’s inextricable association with the Northern Ireland protocol. “So the EU’s influence is no longer just about positive things, like the Erasmus student exchange programme or EU-funded roads. The intense debate over the Protocol now means it’s also seen in highly negative terms by some. “So you could say Brussels is more politically significant — and, with that, more contentious — than it was pre-Brexit,” she said.Britain after Brexit is edited by Gordon Smith. Premium subscribers can sign up here to have it delivered straight to their inbox every Thursday afternoon. Or you can take out a Premium subscription here. Read earlier editions of the newsletter here. More

The EU will lift remaining controls on Japanese food imports imposed after the 2011 Fukushima disaster, in a boost for Tokyo as it faces international pressure over other measures related to the nuclear plant.Brussels has gradually removed controls on food items coming from regions affected by the nuclear explosion. Products including wild mushrooms, some fish and wild edible plants have remained subject to pre-export testing. “The decision by the EU to lift import restrictions on Japanese food will provide strong support to the reconstruction of the affected area,” said Japanese prime minister Fumio Kishida during a press conference after an EU-Japan summit in Brussels.European Commission president Ursula von der Leyen said the decision was “based on science, based on the proof of evidence and based on the assessment of the International Atomic Energy Agency”.Controls on food items were imposed shortly after a 2011 tsunami knocked out the cooling systems of nuclear reactors at the Fukushima Daichi plant, triggering a meltdown. Water used to cool the reactors became contaminated with radioactive nuclides. It has since been filtered to remove most harmful material but there is no practical way to filter out tritium, a radioactive isotope of hydrogen. Last week, the IAEA, the UN’s nuclear watchdog, approved Japan’s plans to release radioactive water gradually into the Pacific, a plan that has been condemned by China and South Korea and opposed by local fisherfolk. Hong Kong has warned it will ban some Japanese sea products if Japan discharges the water. Kishida said the UN agency had concluded that releasing the water was “consistent with international standards” and “negligible on people and the environment”. The EU called on Japan to monitor fish, fish products and seaweed close to the release site for contaminated cooling water.The bloc has also agreed greater access for European agricultural products to Japanese markets. “We are working to facilitate access of agri-products, beef, fruit and vegetables in particular, to Japan,” said Charles Michel, the president of the European Council.Talks in Brussels also focused on security concerns, with the EU and Japan launching a “strategic dialogue” at foreign ministerial level to co-ordinate on security threats, and discussing means for both partners to diversify supply chains from China, in industries such as semiconductors and critical raw materials. Before the summit, Japanese officials said that Russia’s war in Ukraine “can be east Asia tomorrow”, after North Korea fired an intercontinental ballistic missile into waters between the Korean peninsula and Japan on Wednesday and as China continued its “military build-up in an opaque manner”. “We know that Indo-Pacific security and European security are indivisible,” said von der Leyen. More

The UK’s media regulator has accused telecoms groups of failing to make cheaper options aimed at helping the most vulnerable customers visible enough amid the cost of living crisis.An increasing number of telecom operators now offer so-called ‘social tariffs’ — cheaper broadband and phone packages for people claiming universal credit, pension credit and other benefits. However Dame Melanie Dawes, the chief executive of Ofcom, said that she wanted to see “a lot more people taking them up,” as the regulator announced plans to publish take-up of social tariffs by each provider in its annual pricing trends report, due later this year, for the first time. “We don’t think it’s acceptable for these deals to be buried away on the website in a place where people can’t find them easily, and we think that they should be included in call centre scripts,” Dawes told the Financial Times on Thursday. “We want companies to be doing more to help particularly those on the lowest incomes to find the deals that they’re not aware of but which could really help them.” The criticism from Ofcom comes as the government said it was working with regulators across various sectors to try to help households as they battle inflation. Last month, chancellor Jeremy Hunt discussed ways to support households struggling to pay broadband and mobile prices, as a part of an “action plan” to tackle high prices which also involved the Competition and Markets Authority, the Financial Conduct Authority, as well as the telecoms, energy and water regulators.Dawes last week sent a letter to seven chief executives in the industry calling on them to make social tariffs available and make customers aware. She said customers could save up to £200 a year by taking a better offer. “We believe that there is a very strong competitive market at the retail level for mobile and broadband in the UK. But we are concerned to make sure that customers are being given the right information to navigate that, particularly when budgets are so tight for so many families,” Dawes said. Ofcom said that 25 providers offer broadband social tariffs today — an increase from three in 2020 when the body launched a campaign. However only 5 per cent of eligible households had taken up a social tariff as of February, it added. The biggest operators argue that they have already increased measures to support consumers hit hardest by the cost of living crisis. While BT said it “welcomes” Ofcom’s continued focus on social tariffs, it said in its view that around 80 per cent of those using one were already on one of its cheapest deals. “The current private sector-funded model is unsustainable,” it added, asking for help from the government. Virgin Media said eligible customers can apply for its social tariffs in “just two clicks — a matter of seconds — on our website.” The regulator on Thursday also launched an investigation into Virgin Media after complaints from consumers that the operator is making it difficult for them to cancel their services. Virgin Media said it is “committed to providing our customers with excellent service, supporting them with any issues and giving clear options should they wish to leave.” It added that complaint rates relating to difficulties leaving have halved over the past year. “We will keep working with Ofcom throughout its investigation, while making further improvements in how we handle customer complaints to provide a better overall experience.” Ofcom is also investigating whether telecom operators are giving enough information to their customers on annual price rises that affect customers in the middle of their phone contract. More

Some eurozone rate-setters believe more interest rate rises will be necessary after the summer amid concerns that inflation was staying “too high for too long”, according to an account of last month’s monetary policy decision. The minutes of the June meeting of the 25-member governing council, which the European Central Bank disclosed on Thursday, support economists’ expectations that interest rates could need to keep rising to tame persistent inflation. “It was seen as essential to communicate that monetary policy had still more ground to cover to bring inflation back to target in a timely manner,” the document stated, adding that “interest rates beyond July” could be considered “if necessary”.The central bank last month increased borrowing costs by 25 basis points to 3.5 per cent, the highest level in 22 years — and signalled that an increase of a similar magnitude was likely at its next meeting on July 27.Recent indicators suggest that the eurozone economy is slowing down while inflationary pressures are easing. However, Isabel Schnabel, an ECB executive board member, said this development was at odds with the expectations of financial markets, where inflation-linked swap forward rates and option prices still pointed to “rising upside risks to inflation”. Schnabel warned that this could reflect investors’ concerns over “whether the currently priced-in ECB policy rate path was sufficient to rein in inflation in a timely manner”.At least one member initially favoured a 50bp increase in June. Hawks on the governing council argued that the inflation outlook required a “strong signal” from the ECB, and that it had sometimes been too timid in its response to changing price pressures. However, the majority supported the argument of ECB chief economist Philip Lane that the central bank should follow a “meeting-by-meeting approach” rather than signalling any definite intentions. Lane implicitly warned that the ECB otherwise risked borrowing costs rising too much, arguing that “rates were moving closer to a possible peak level”.Bank of Italy governor Ignazio Visco said on Thursday in a TV interview that the ECB was “not very far” from the peak of its tightening cycle, adding that rates will have peaked by the end of the year.Some policymakers seem to be losing faith in the ECB’s own quarterly inflation projections which consistently underestimated upward pressure on prices, the minutes said. “It was argued that the governing council should focus more on data than on the projections,” the statement said, adding that a higher focus on “observable data” could result in better decisions.More dovish policymakers argued that higher borrowing costs were already slowing down economic activity “as expected”, saying this effect “thus far [had] been concealed by tailwinds for growth” from pent-up savings and supply-side bottlenecks which are now beginning to fade. More

The ECB raised its interest rates to their highest level in 22 years at the June 14-15 meeting and said a ninth consecutive hike was all but guaranteed in July as it predicted inflation would stay above its 2% target through the end of 2025.The ECB’s account of that meeting showed rate increases might continue at the central bank’s following gathering on Sept 13-14, as earlier reported by Reuters.”It was seen as essential to communicate that monetary policy had still more ground to cover to bring inflation back to target in a timely manner,” the ECB said. “The view was held that the Governing Council could consider increasing interest rates beyond July, if necessary.”It added market expectations at the time — which priced in rate hikes in June and July and a 20% probability of an additional 25 basis-point increase afterwards followed by cuts in the first half of 2024 — “could be judged as insufficient to bring inflation back” to 2%.Data since that meeting showed the euro zone economy losing steam and inflation in the bloc falling for a third straight month in June.But so-called core prices, such as those for services, have been rising stubbornly fast and aren’t expected to relent soon, leaving the door open to a further rate hike by the ECB in September. Still, policymakers agreed to follow a “data-dependent approach” and “meeting-by-meeting optionality” to decide on rates beyond July. The ECB raised borrowing costs by a quarter of a percentage point in June but the account showed “a preference was also initially expressed for raising the key ECB interest rates by 50 basis points”.It also decided to stop replacing bonds bought its Asset Purchase Programme when they mature although one policymaker proposed “deferring the decision to a later date” to assess how the market would digest the repayment of half-a-trillion-euros worth of central bank loans. More

Chinese portfolios did eke a net positive month with the $1.9 billion inflow to equities more than offsetting the $1.6 billion outflow in debt.June saw a $12.3 billion net inflow from non-locals into EM stocks and $9.8 billion to EM debt securities. The net positive $22.1 billion compares to $10.7 billion in May and an $8.8 billion outflow in June 2022.Flows to Asia were the strongest regionally at $13.5 billion, followed by Latin America with $6.7 billion.”The emerging market credit outlook should continue to improve as growth slows, inflation eases and the geopolitical climate turns more market-friendly,” said IIF economist Jonathan Fortun in a statement.”Nevertheless, region-specific factors, upcoming elections and surprises in world markets could derail the momentum that is building.”Supporting the view of more flows to emerging markets, U.S. inflation data came in on Wednesday at its slowest annual increase since March 2021. The data bolstered expectations that the Federal Reserve is near the end of its tightening monetary policy cycle, welcome news for EM assets.Futures traders are pricing in a 25 basis-point Fed rate hike in a meeting scheduled in two weeks, but no more rate hikes are priced in this year according to the CME’s FedWatch tool. More