Monday 16 January 2017

Brexit battle ready to begin...

More downside for the Pound. This is of course great news for the UK as a whole:

- Our debt is in Sterling, so we become less indebted in real terms as the Pound falls.
- Inflation is needed to regularise our economy after the QE inspired mess.
- Our exports will flourish as they become more competitive.
- Foreign Direct Investment will increase as it buys more for less.
- Tourism will increase as the UK becomes cheaper to visit.
- As our relative wages fall, immigration may drop slightly as we become more competitive in this respect.

The only negative is travelling abroad is more expensive for us Brits, but staycations are also a net benefit to the economy in any event.

So none then.

Anyhow, the cause of this is the Prime Minister and Chancellor making noises about negotiating from a Hard Brexit stance and then adding in that we can make threats also. Turning the UK into a massive offshore tax haven (which of course we are already....) for one.

This added to ND's post of Friday where Michel Barnier has woken up to the threat of a UK exit causing the cost of capital to rise for European firms and we are in a much better place.

Remoaners are going to go full steam now, as final defeat for them hoves into view. For the majority though, at last the phony war is ending and the meat of the discussions can happen.

Putting it about like this is refreshing for the Brexiteers; Europe holds lots of the cards and so we will need to be strong in trying to negotiate any deal at all with them.

And that is before we get to Trump and his over-friendliness.....


Anonymous said...

The weak pound is too late for Daddies Sauce, which I see is now produced in Poland. HP is still produced in Holland. Thanks Mr Buffett!

Hammonds Chop Sauce is too sweet and is owned by McCormick. Any other brown sauces still made in the UK? I refuse to buy Polish brown sauce. If only Hendersons of Sheffield would produce one, their relish is pretty good.

Anonymous said...

McCormick's have a number of production facilities in the UK - I know they produce ketchup and brown sauce in the UK!

Steven_L said...


- Our incomes are in Sterling, so we become less paid in real terms as the Pound falls.
- Deflation will happen if we ever regularise our monetary policy after ZIRP and QE.
- Our imports will cause hardship as they become more expensive.
- Foreigners will run for the exit as the exchange rate bites their investments.
- Healthcare tourism will increase as the UK becomes cheaper to visit.
- As our relative wages and living standards fall, immigrants may take displace more people in the labour market as they are more competitive when it comes to living 12 to a bedroom and UK workers will just give up, get pregnant and get a council house.

Blue Eyes said...

Brown Sauce: The UK government's first, last and only priority for the next couple of years.

A fall in the pound is a monetary loosening, all other factors being equal. Thus unlikely to result in deflationary pressure on its own.

The Guardian (again!) business live thing had a quote from a City commentator saying basically "none of this is news, the UK government has been fairly consistent in signalling that it wants a broad free-trade agreement outside the SM and CU".

The rest is noise. Someone needs to tell the BBC because its reporting of various options is absurd. See their article yesterday about whether the UK could copy the Singapore model.

One thing I don't get is the government's stance on potential third-country agreements and competitiveness reforms. Instead of saying we want to be a European economy but we might do some tax cuts, why not prepare a solid set of proposals for how we would deal with EU-intransigence? You don't go into a negotiation saying "we want to agree but can you give us a sweetener"!

Anonymous said...

Alas I think they only make "Chop Sauce" which is not spicy enough and much too sweet. There used to be a factory in Apperley Bridge, Yorkshire, but wiki tells me "Hammonds sauce factory on Harrogate Road close to the canal has been replaced by modern development".

Anonymous said...

"whether the UK could copy the Singapore model"

All we need is to boost the average UK IQ to 105 ! Simples !

CityUnslicker said...

SL - no sign of foreigners running at all; quite the opposite. Those with a long view know the Pound is likely to recover 20% or so in the next few years - today is a day for bargain hunting for the brave.

- Imports, good point, some stuff will get more expensive so your right that should go on the downside list for us residents.

- reversal of ZIRP policy - well, who the hell knows how any of that will work out. The Bank of England have no plan to reverse any of it - this is their comment to the Commons of last year.

- Your relative wages point is a tautology.

andrew said...

Anon, mix up some tomatoe sauce and hendos - instant brown sauce.

Anonymous said...

An argument for a weak currency is madness. Based on your arguments the further it drops the better. Best of all if it were valued at 0.01USD to a GBP. Imagine the effing chaos then. Better to be a rich country than a poor one.

Steven_L said...

"I went away for a couple of weeks and it seems you all had a huge party without me. When I left the UK on 28th October the Great British Pound was at 1.63 to the US$ and 1.25 to the Euro.

Then it seems Mr King had some sort of party at the Bank of England and decided to have a huge give-away...of our wealth. Looking at it now it appears in the two weeks I was away that we managed to wipe about £41 billion of UK GDP value in currency depreciation alone."

CU, November 2008

Now apparently the exchange rate doesn't matter, in fact to hell with it, the lower the better! It was a sign of weakness then and it is a sign of weakness now. It's a sign that the tories are failing on the economy.

CityUnslicker said...

SL - nailed me fact I knew you would; my form is too bad. Luckily, no one reads C@W for its internal consistency!

Of course, as pointed out above a weak currency is not a total panacea - nor should it collapse. But the terms of trade, TODAY, are slightly in our favour. IN say 2008 the fall in the currency was related directly to a fall in our GDP and status. Today it reflects nothing other than sentiment - where do you think the £ will be in say 2 years time from now? Personally, as above, I would bet a fair bit healthier.

Would a strong currency be better now - hmmm- why does every central bank play the debasement game today? This is worthy of a post on its own.

Finally, on a trade weigthed basis the Pound was overvalued at £1.50 and is now undervalued at £1.20. Again in 2008, the pound was not hugely overvalued.

Blue Eyes said...

Why stop at a $2 pound, let's make ourselves rich by taking it to $10, or if we are really going to do this, $100!?

Maybe CU has developed his views in the last decade? Something many of our esteemed readers cannot be accused of.

I realise that monetary economics is complex. Real economists argue about this stuff. But seriously, are you arguing that with a still-huge current account deficit, minimal inflation and a huge gigantic overwhelming debt pile, UK monetary policy is too loose?

Steven_L said...

I'm still heavily weighted toward sterling and UK biased stocks. Virgin Money and Inland Homes are still my biggest holdings. I've recently added Bovis Homes, GoCompare, Sports Direct and Vertu Motors. I do think this is a buying opportunity in the medium term. But the exit plan is very much to cash in at the top of the credit and land price cycle and get into foreign currency, sometime in the next 6 to 9 years I expect.

But in hindsight, I wish I hadn't gone into the referendum 80% brexit battered UK & German equities and 20% sterling cash. I should have been no more than 50% brexit battered UK equities and 50% US bonds / equities / gold. I'm up for 2016, but I'd have been more up by simply changing into $.

Timbo614 said...

@BE: "Brown Sauce: The UK government's first, last and only priority for the next couple of years."

Careful, remember Marmite-gate!

Blue Eyes said...

Marmitegte was such nonsense, anyone with any sense whatsoever knows that own-brand yeast extract is the same and half the price.

Electro-Kevin said...

I think we're in for tough times. I never imagined that Brexit was going to be easy.

Electro-Kevin said...


A bacon sandwich with brown sauce. Which do you think is the most important ingredient ?


I can pretend it's a bacon sandwich even without bacon, so long as it has bread, butter and brown sauce.

I can't pretend it's a bacon sandwich if it's just bacon.

Wot say you ?

R E Moaner. said...

Is May's sudden enthusiasm for hard Brexit a damascene conversion or a political manoeuvre. She's hard right and sees the chance to steal UKIP's clothes and voters.

May's May election may be on the card now were are in the UK produced brown stuff (See what I did there?)

Blue Eyes said...

EK you might be right (other opinions are available), but who gives a stuff where the factory is?

Electro-Kevin said...
This comment has been removed by the author.
Electro-Kevin said...

Blue - Yeah. Who gives a stuff.

I loved it when my G******* razor production engineer bro' in-law told me I should vote Remain because leaving the EU would be disasterous for jobs.

His entire career has been in outsourcing UK manual jobs and often using the EU to do it ! All that's left is a lab and a rump of execs. (Taxes are paid in the US.)

I still can't afford his razors.

If we're going to subsidise businesses to make such decisions (via our welfare system) and if we're going to forgo home rule at their behest - then at least may we have CHEAPER SAUCE ???

10:08 am Delete

Electro-Kevin said...

I can't pretend it's a bacon sandwich if it's bacon, butter... or even brown sauce !

I conclude that the most important component of the bacon sandwich is the bread.

Once the harsh winter of Brexit bites I think we're going to be alright. It's just a matter of making do.

Nick Drew said...

"Brexit Negotiations: Now We're Talking! The Grauniad, bless their little red socks, has an Absolute Cracker of an exclusive..." C@W 13 jan

"Theresa May can now drive a hard Brexit bargain: The Guardian had a cracking story on Saturday..." Spectator 16 jan

(13 jan = Friday, BTW - we were on this before the print copy (Sat))

Electro-Kevin said...

That's why I come here first thing for my daily news.