U.K. Election Delivers New Variable for Uncertain Global Economy

It enhanced the possibility that a chastened government led by Mrs. May would now strike a less confrontational approach with Europe while seeking a way to keep Britain within the bloc’s large single marketplace.

As Britain prepared for its face-off with Europe, the prime minister had been adamant that her country would impose strict limits on immigration, a posture seemingly enhanced by recent terrorist attacks. Yet limiting immigration appeared certain to cost Britain inclusion in the European single market, a swath of the globe stretching from Ireland to Greece and holding some 500 million relatively affluent consumers.

The European authorities have consistently emphasized that Britain’s continued inclusion in the single market requires that it abide by the bloc’s rules — not least, a provision that people be allowed to move freely within its confines.

In the parlance of the moment, Britain appeared destined for a so-called hard Brexit, in which it would sever itself from the single marketplace, raising the prospect that tariffs could ultimately constrain trade across the English Channel.

This redrawing of the basic geography of European commerce was playing out just as President Trump was disavowing regional trade deals across the Atlantic and Pacific, while variously threatening trade hostilities with Canada, China, Germany and Mexico.

This election could change that trajectory.

It is unclear how long Mrs. May’s government will hold together — even with the support of the Democratic Unionist Party from Northern Ireland, it retains a narrow majority in parliament. But the unexpected new political configuration might compel Britain to relinquish its pursuit of immigration limits in an effort to keep itself within the single market.

In short, the election has complicated the assumption that Britain is headed irretrievably toward the exits, producing a moment in which seemingly everything may be up for reconsideration.

Those who have favored Britain remaining within Europe, or at least softening the terms of its exit, now have “an expectation, or at least a hope, that cooler heads will prevail,” said Jeremy Cook, chief economist at World First, a company based in London that manages foreign exchange transactions. “It may be that hard Brexit has been rejected by the electorate.”

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And yet, perhaps counterintuitively, the election also appeared to increase the possibility of an unruly Brexit in which Britain crashes out of the European Union absent a deal governing future interaction.

Mrs. May formally initiated the proceedings in March, setting the clock ticking on a two-year negotiating window in which Britain and Europe must settle financial terms and strike an agreement on trade. That was always going to be complicated, subject to the influence of domestic politics in the other 27 members of the European Union.

Now, such talks are to unfold in an atmosphere in which she must tame an unruly party whose fiercest advocates for Brexit may be emboldened by her narrow majority, with the prospect of still another election later this year. All of which heightens the possibility that the two-year clock may expire without a deal, a scenario known in Brexit vernacular as going over the cliff edge. As the metaphor implies, it could get ugly.

Britain now sends nearly half its exports to the European Union, a flow of goods that would be impeded by its departure from the single market.

London’s future as a dominant global financial center would be imperiled. Global banks have established regional headquarters in the city, relying on so-called passports that allow them to serve clients across Europe as if the bloc were one country, with a single set of regulators. If Britain abandons Europe without a deal, the banks would have to satisfy regulators in multiple countries. Many of the transactions they now handle in London for European clients would be effectively illegal.

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