London Briefing: Services figures key to portrait of post-Brexit UK

Raft of economic data promises to give clearer picture of referendum impact

Michel Barnier formally takes office on Saturday as the European Commission’s chief Brexit negotiato. Photograph: Francois Lenoir/Reuters

Michel Barnier formally takes office on Saturday as the European Commission’s chief Brexit negotiato. Photograph: Francois Lenoir/Reuters

 

Britain’s nemesis Michel Barnier formally takes office as the European Commission’s chief Brexit negotiator this Saturday. The French politician sponsored a wave of anti-City banking and markets regulations as commissioner for the single market from 2010 to 2014, so it is safe to say many in UK politics and business hoped they had seen the back of him.

On his appointment Barnier pledged to be “fair” while representing his side in the painful divorce that will see the UK detach itself from a European Union marriage for which economic and trade policies have been tailored since 1975.

Given that the commission’s stated backstop position is that free trade is fair only when linked to free movement – and that the UK government’s is that immigration must be limited – Barnier may simply have the job of saying “tant pis.”

The EU chief might not turn up to Berlaymont building in Brussels until next Monday; after all, why work on a Saturday when the UK has yet trigger article 50? But once Barnier has settled in, his first task is to draw up the itinerary for an autumn tour of member states to gauge their resolve for the upcoming staring contest. What they say to him will decide just how straightforward his job really is.

By the time Barnier has finished his Grand Tour it will be 2017 and Theresa May will be under increasing pressure to trigger article 50. Between now and then she will be watching UK business and economic indicators carefully to gauge the strength of her hand. Until now the UK’s economy has seemed pretty robust, potentially permitting a “hard” Brexit. However, until now the hard economic indicators have been backward looking and their resilience could be explained by the fact that nobody was expecting Brexit.

There were some worrying indicators from forward-looking business surveys in July, but a hot summer hiatus ensued as the pound fell and the Bank of England primed the quantitative easing money pump. With the Brad Pitt and Angelina Jolie divorce dominating the news, everyone seemed to have forgotten about Brexit.

Now, with the nights drawing in, we will get the data needed to properly assess the situation. In this context, the publication this Friday of the Office for National Statistics (ONS) figures on the July’s service-sector performance is particularly important.

So far, hard economic data for July onwards has been inconclusive. We already know that manufacturing output fell that month, but this was in line with a three-month trend predating Brexit. Construction was flat in July – but then it has been since 2015. An announcement yesterday from Wolseley, the listed building supplies group, suggests there is trouble down the road. Wolseley is to make 800 UK staff redundant, which is more significant when you consider the company’s UK business accounts for only 8 per cent of its profits, with its core operations in the US still driving revenue growth.

Survey evidence suggests services – which are 78 per cent of the UK economy – have been hard hit. A Markit/ CIPS survey predicted activity dropped to an 89 month low in July, before rebounding in August. If the official figures look anything like that then any country invested in a healthy UK should be worried. A raft of other economic data out this Friday, including business investment for the three months to June, should help to give a clearer picture.

Embarrassing court case

With many eyes on the economy, there has been little coverage of an embarrassing court case for Lloyds Banking Group, which originated in HBOS – the bank it bailed out – and goes back for more than a decade.

Between 2003 an 2006 Lynden Scourfield, a senior manager in the restructuring division of HBOS, allegedly advanced loans of hundreds of millions of pounds to customers who were already in in impossible debt in return for back payments; HBOS and Lloyds have written off £254 million as a result.

Four of those involved – although not Scourfield himself – are being tried at Southwark crown court for their actions. When I reported on this story for the Sunday Telegraph in 2007 it was obvious to me that this sort of behaviour could happen only in the most bloated of banks and that worse was to follow; HBOS, which would have collapsed without a taxpayer bailout, insisted their losses would be limited to the “single millions”. The court case is a reminder that there is a long tail of consequences in business – much longer than the electoral cycle of those negotiating Brexit.

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