Morning Brief – Oh that’s where I left it!

Morning Brief – Oh that’s where I left it!

Tue 11 Feb 2020

Oh that’s where I left it!


It takes a big lens to capture a clear image of a piece of paper from tens of metres away. But in most of those circumstances what takes far more skill and consideration is the hand placement, angle and speed of travel to ensure the photographer achieves the seemingly accidental photograph. Journalists would be forgiven for thinking Sajid Javid, UK Chancellor and inhabitant of no. 11 Downing Street, had taken up moonwalking practicing his daring performance.


A briefing paper carried into no. 10, the Prime Minister’s residence, and captured in Downing Street purports to show the UK government’s stance on Financial Services in a post-transition trade deal. It’s no Canada style and is the antithesis of Johnson’s so-called ‘Australia-style’ – whatever that is – deal. Instead it shows that the government is aiming to create the first ‘permanent equivalence’ regime outside of the Union. Awesome. But what does that mean?


Nations outside the Union can have the right to operate within the Union’s boundary if they are deemed to have achieved equivalence. Equivalence means that the ‘3rd country’, the outside party, has legislation and regulation deemed to be equivalent to EU rules and therefore not undermine the integrity and competitiveness of the bloc. However, as we were reminded of with Switzerland last year, equivalence can be ripped away from 3rd countries like the UK with virtually no warning. In some circumstances financial services are afforded a grace period of 30 days to sort their affairs out – a woefully insufficient period of time if you’re a hefty financial services provider who’s just been told their European client and product bases are now off limits.


The financial services sector is not only responsible for 7% of value added in the UK each year and just shy of 4% of the UK’s labour force, it is also a source of comparative, and in some cases absolute, advantage for the nation. That means the UK is strongly advantaged by trade in that service at the very least, and at most has a world-leading provision and efficiency in the service. The deliberately accidental leak that financial services are receiving explicit attention within the negotiations should reassure markets slightly. The news has offered little confidence to Sterling traders this morning as the Pound trades in line with its average value yesterday, just shy of a 2.5 month low for the Pound versus the US Dollar.


The lack of optimism in this phase of negotiations reflects the reality that just because a deeper trade deal than Johnson and Javid have espoused in recent weeks might actually be on the cards, it doesn’t mean the UK will be able to prise the deal from the mouth of EU negotiators. For example, developments in the political landscape of Ireland, a nation that joined the-now European Union at the same time as the United Kingdom, might cast doubt on the willingness of the EU Council to grant the UK a generous post-transition deal.




Discussion and Analysis by Charles Porter

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