A
pro-Remain campaigner.
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Deutsche Bank: Continuing uncertainty on Brexit and a
growing political crisis could lead companies to trigger their
worst case Brexit plans.
Worst case Brexit plans for major companies are
generally believed to involve large-scale movements of staff
out of the country.
If companies do begin to move, it could hit UK
growth.
LONDON — The
rising risk of a political crisis in the UK could lead major
companies to trigger their worst-case scenario Brexit plans,
according to a note from Deutsche Bank.
Writing on Wednesday, DB's macro strategist Oliver Harvey told
clients that "the newsflow in recent days" suggests "rising risks
of a political crisis before agreement is reached on transition
in March."
Prime Minister Theresa May is facing increasing pressure from
both sides of her party. Pro-Brexit MPs are accusing her of
failing to pursue a hard enough Brexit and pro-remain MPs argue
the exact opposite.
"Prime Minister May is struggling to shape a political vision
without committing to a decision on the future relationship with
the EU27," Harvey writes, and she is unwilling to commit given
the pressure from both sides of the party.
The EU's "uncompromising" stance on the form of any transition
deal makes it less likely that an agreement will be reached by
the March EU Council Summit, Harvey believes, pushing back the
timeline of Brexit and therefore making it more likely that major
firms will trigger those contingencies.
Many Brexit contingency plans are believed to involve large-scale
movements of staff out of the country.
As if that wasn't bad enough, Harvey points to discussions of the
post-transition relationship between the UK and EU is another
potential sticking point.
Here's Harvey (emphasis ours):
"On the future relationship, the UK's position continues
to remain ambiguous. Prime Minister May has repeated her
desire for a bespoke free trade agreement, while the EU has
remained consistent that enhanced market access will require the
UK to meet Single Market obligations, such as President Macron's
comments that a deal for financial services would require EU
budget contributions.
"The EU is due to release draft guidelines on the future
relationship at the March 22-23rd EU Council. It is of some
concern that the UK has yet to formulate a clear policy at this
stage."
Away from direct Brexit talks, but very much linked to them,
Harvey believes that uncertainty over the future of Prime
Minister May could have an impact on firms' Brexit plans.
There are now reports that Graham Brady, the chair of the
Conservative Party's influential 1922 Committee,
has received numerous letters from backbenchers calling for May's
resignation.
"On the domestic front, Prime Minister May is under increasing
pressure from Conservative MPs over both the lack of clarity on
the future relationship and flagging poll ratings," Harvey
writes.
"If [a leadership challenge] occurred before March," Harvey
writes, "it could carry significant negative economic costs, with
surveys suggesting firms would trigger contingency plans by
then."
Banks and financial institutions in particular need to make final
decisions about moving staff by the end of the first quarter at
the latest. Banks need at least a year, if not longer,
to set up fully functioning branches and subsidiaries in Europe
to maintain uninterrupted EU activities.
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