The growth figures are out, and they give us some idea of what the immediate impact of the Brexit vote has been. Growth is down 0.2 per cent to 0.5 per cent in the quarter following the leave vote. Not great news but better than the expected 0.3 per cent rate. Britain’s chief statistician, John Grice, says there is little evidence of a Brexit shock on these figures.
But there are choppier waters ahead. Mark Garnier said publicly in an interview with the World at One yesterday what many in the City have been saying privately for sometime: that the passporting rights of British banks are unlikely to make it into the final Brexit deal.
Garnier, who used to work as a fund manager before becoming an MP, is well-liked in the City, and, like Philip Hammond, is one of the Remainers who hasn’t quite turned his sword into a ploughshare, warned that the row over the price of Marmite is the sign of things to come.
But there are storm clouds on the British and European economy that have nothing to do with the Brexit vote. Officials at the Bank of England are asking big British lenders what their exposure to Germany’s Deutsche Bank and Italy’s Monte dei Paschi, both of which are the subject of investor worries about their balance sheets.
Monte dei Paschi, the world’s oldest operating bank, has long been a source of concern. (One argument near the top of government for triggering Article 50 sooner rather than later has been avoiding sucking the United Kingdom into a bailout deal for Monte dei Paschi).
In some ways, that the European banks are not looking in rude health increases British leverage in exit talks, at least as far as services are concerned. But – and it’s a big but – if the end result is that banks face further increases in their credit requirements, it will reduce still further the willingness of banks to domicile in both London and within the EU after Brexit, as the costs will only increase.
But if a better deal for British banks comes at the expense of another financial crisis, that will come as thin comfort indeed.