Brexit relief for UK economy might not last long

Britain’s Prime Minister Boris Johnson, and his partner Carrie Symonds, at 10 Downing Street in London in the early hours of Friday morning, following Johnson’s landslide victory in Thursday’s general election. (AP)
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Updated 14 December 2019

Brexit relief for UK economy might not last long

  • Tory landslide gives prime minister biggest majority since Margaret Thatcher

LONDON: The UK’s economy will cast off some of the Brexit uncertainty that has held it back since 2016 after Prime Minister Boris Johnson’s election triumph, but the risk remains of another “cliff-edge” showdown with Brussels in a year’s time.

With the country’s exit from the EU on Jan. 31 now a foregone conclusion, the question for investors is whether Johnson will stick to his campaign promise not to delay the end-of-2020 deadline for a new EU trade deal.

That deadline is widely seen as tough to meet, given the scale of issues to be resolved.

In the short term, the biggest election victory for Johnson’s Conservative Party since Margaret Thatcher’s 1987 triumph removes the deadlock in parliament over how, or even whether, to proceed with Brexit.

Johnson said in a victory speech on Friday that the UK would leave the EU on Jan. 31 “no ifs, no buts, no maybes.”

His election win also banishes the prospect of a sharp shift to the left under the Labour Party which promised nationalizations, more power for trade unions and a much bigger role for the state, which had worried many business leaders.

“For Brexit, this all means that Johnson’s deal will be ratified, most likely allowing the UK to leave the EU at the end of January,” economists at ING said in a note to clients.

“But more importantly, it could give the prime minister the political breathing room to ask for an extension to the transition period.”

The pound jumped by the most in nearly three years on the first sign of the scale of Johnson’s victory and shares in companies relying on the domestic economy rose.

Investors pared back their bets on the Bank of England cutting interest rates as the uncertainty about Britain’s economy lifted, at least in the short term.

The world’s fifth-biggest economy has slowed since voters decided to take Britain out of the EU three and a half years ago.

Leaving the bloc, which accounts for nearly half the country’s exports, is seen as a drag on its economic growth over the long term.

But the new sense of clarity about the government’s direction, at least in the short term, is likely to lead to a pick-up in the pace of growth in the coming quarters, economists said.

UK government bond prices fell sharply as trading in London’s gilt markets opened, helped not only by the conclusive election result but also by signs of an end to the US-China trade deal that has weighed on the global economy.

But economists turned their attention quickly to what the election result meant for Johnson’s longer-term Brexit plans.

He promised during the campaign not to extend a Brexit transition period beyond Dec. 31 2020.

That raises the prospect of tariffs and other barriers coming into force for Britain’s trade in goods and services with the EU in just over a year’s time.

Economists at RBC Capital Markets said the new government would probably try to keep a no-deal Brexit on the table for as long as possible to maintain leverage with the EU in the trade talks.

“However, with such a comfortable winning margin Johnson is not reliant on any faction of his party, in particular the hard-Brexiteers who might have tried to steer him toward a hard Brexit at the end of the transition period,” they said.

“Some form of extension now looks more likely even if some effort will be made to give the impression that is not the transition period that the Conservative Party promised not to extend in its manifesto.”

But economists at Citi said they thought Johnson would not try to delay the transition phase, having won support from voters who backed the Tories for the first time over their tough stance on Brexit.


MoU signed to facilitate investment in Saudi Arabia

Updated 21 February 2020

MoU signed to facilitate investment in Saudi Arabia

RIYADH: The Saudi Arabian General Investment Authority (SAGIA) and the Diriyah Gate Development Authority (DGDA) signed a memorandum of understanding (MoU) to step up cooperation, the Saudi Press Agency reported on Thursday.

Under the MoU, the two authorities will establish a joint working group to boost cooperation in several areas including facilitation provided to investors, conducting economic studies of the market, building partnerships with commercial and industrial bodies and local companies, launching businesses, promoting the ease of doing business, providing logistic support, participating in local and international exhibitions, forums and special visits and exchanging knowledge and information.

All this will predominantly be in aid of attracting local and foreign investors. 

“SAGIA believes in the importance of such cooperation that can unify and multiply the efforts in a way that sets the world’s attention on the Kingdom’s cultural and heritage treasures and investment opportunities,” said SAGIA Gov. Ibrahim Al-Omar.

“This is done through close cooperation with DGDA to highlight these opportunities and market them internationally and locally. This MoU is a step in the right direction to achieve the objectives and directives of both bodies.”

Jerry Inzerillo, CEO of the DGDA, said: “Cooperating with SAGIA is one of the most important international investment motors to attract local and international investments to the Kingdom. This comes at a time where developing the Kingdom’s investment infrastructure is found within the objectives of its Vision 2030.

“At DGDA, we aim at attracting the best technologies and regional and international investments to the Kingdom. This will contribute to the improvement of the local economy and promote our objectives seeking to turn Diriyah into the Kingdom’s gem and an international economic tourist destination,” he added.