It’s full speed ahead for ‘hard Brexit’

Business Week: Also, the World Economic Forum at Davos, luring bankers and upbeat SMEs

Joe Biden, the now former US vice-president, used his final official speech to address growing inequality in wealth distribution.

Having left us fumbling around in the dark for months, British prime minister Theresa May finally flicked the light switch this week and revealed some of the UK's strategy and the post-Brexit landscape that's likely to unfold.

In a landmark speech that won her much acclaim from Brexiteers and the British media, May – "the new iron lady", as the Daily Mail beamed – declared London's intention to leave the single market and walk away from talks in the event Britain is offered a bad deal.

Many commentators inferred from the speech that Britain is set for the hardest of Brexits, also exiting the EU’s customs union, with May angling for tariff-free trade with Europe and cross-border trade that will be “as frictionless as possible”.

All this is bad news for the Republic. Department of Finance officials told the Oireachtas Finance Committee after the speech that the plan will cost Ireland dearly. Exports to the UK could fall by a third, in a worst-case scenario and 40,000 jobs will be lost over the next decade.


Economic modelling work undertaken by the Department and the Economic and Social Research Institute (ESRI) also suggests GDP will be 3.5 per cent smaller after five years and 4 per cent smaller after 10 years than it would have been without Brexit.

While the markets have typically been unsettled by any talk of a hard Brexit since June’s referendum, May’s speech sent sterling to its biggest one-day gain against the dollar since 1993, although it fell back again the following day.

All this yo-yoing does little for certainty or stability, but UK chancellor of the exchequer Philip Hammond said that while it "can be irritating at times", he was confident the pound would find an "appropriate level" as Brexit progresses.

May and Hammond did little to soothe the concerns of Irish employers’ group Ibec. Danny McCoy, its head, said the hardline “no deal is better than a bad deal” approach adopted by the UK would more likely lead to no deal.

"She talks very eloquently but she's saying something very harsh, and that's the way we need to interpret this," he told The Irish Times Inside Business podcast. "I think she knows it's a 'no' deal. They're out and they're going to be aggressively looking for that trade deal and we can expect aggressiveness coming on the corporate tax rate as well."

Expecting a ‘wave ’ of bankers

The upside for the Republic is that clarity on a hard Brexit is likely to accelerate the process of financial institutions abandoning London, and the Central Bank has set up a dedicated webpage to facilitate firms interested in seeking authorisation in Ireland.

Speaking in Hong Kong on Tuesday, Minister of State Eoghan Murphy said he expected "a wave" of UK-based financial services companies to announce full or partial relocations to Ireland by mid-2017.

There’s already been a rise in enquiries about available places at international schools in Paris, Dublin and Madrid, according to senior staff. Murphy said the Government is considering setting up a school that offers an international education based on the baccalaureate.

Goldman Sachs, for one, may cut its London staff in half while transferring some to other locations, according to German media. A spokeswoman for the bank however said it hadn’t made any decisions.

Another, Barclays, said it could look at reassigning its Frankfurt branch to its Irish subsidiary rather than moving out of London. Chief executive Jes Staley said it would be "very difficult" to move a financial centre such as London to another location.

Minister for Finance Michael Noonan was bullish about the prospects of companies moving to Dublin. He said the Central Bank has received inquiries from more than 100 firms. “We’ll get our share,” he said. “There’s no doubt at all that there are many serious financial services companies that are committed to coming to Dublin.”

In the North however, there are no such sweeteners. Businesses are said to be “deeply worried” about the future for cross-Border trade and the rights of Irish citizens to work there, in spite of May’s reassurances about maintaining the common travel area.

Sinead McLaughlin, chief executive of the Derry Chamber of Commerce, said businesses in the northwest wanted to retain membership of the single market and the customs union. “It seems they will have neither,” she said.

Taoiseach at Davos

The issue of Brexit and indeed the inauguration of new US president Donald Trump hung like a shadow over Davos this week, as world leaders from far and wide descended on the Swiss municipality for the World Economic Forum.

Taoiseach Enda Kenny and Minister for Finance Michael Noonan sought to secure the Republic’s position as a global investment location as they met dozens of current and prospective investors.

“Yes, of course, in terms of currency fluctuations there are challenges,” Kenny said. “That’s an undoubted fact, but we’re continuing to be competitive, looking at new markets, at new opportunities.”

Joe Biden, the now former US vice-president, used his final official speech to address growing inequality in wealth distribution. He accused the top 1 per cent of “not carrying their weight” and called for a fairer system of taxation to ensure that everyone pays their fair share.

IMF managing director Christine Lagarde said the middle classes, particularly in advanced economies, were “in crisis”, with more wealth accumulating at the top. “If you combine that with signs of lack of trust, lack of hope, disenchantment with many of the principles and visions people had for their future...there is clearly a crisis,” she said.

US secretary of state John Kerry meanwhile defended outgoing president Barack Obama’s economic record. Recalling how the then treasury secretary had come up to him “pale and quaking” in the autumn of 2008 as the financial crisis took hold, he said: “Today we are the strongest economy in the world by far. The dollar is the strongest it has been in years.”

This year also saw the first ever address by a Chinese leader to the forum, with Xi Jinping presenting a strong defence of globalisation and free trade, as well as warning about the perils of protectionism.

Irish SMEs upbeat

Back home and – despite all the doom and gloom – Irish small and medium-sized businesses are said to be more positive about the future of the economy than their peers in the UK and across Europe.

A survey, conducted via Facebook in collaboration with the OECD and the World Bank among 140,000 small businesses (200 in Ireland) in 33 countries, found 53 per cent of Irish businesses feel positive compared with just 44 per cent of European SMEs.

And sure why wouldn’t they when the latest economic indicators show continued improvement. Irish shoppers for instance spent an additional €92 million on groceries over the Christmas period, 3.8 per cent more than last year.

Figures from Kantar Worldpanel show Supervalu has regained top spot from Dunnes Stores as the Republic's largest supermarket, with a market share of 22.8 per cent. Aldi posted the strongest growth of all the retailers with sales up by 5.3 per cent.

Separately, activity in the construction sector is continuing to bounce back from the crash. Ulster Bank’s latest purchasing managers’ index (PMI) shows that although the pace of growth in December’s index moderated to 58.9, it remained well above the 50 line that separates growth from contraction.

Property price inflation however has risen to 8.6 per cent following the introduction of the Government’s help-to-buy scheme and the loosening of the Central Bank’s lending rules.

The latest Residential Property Price Index (RPPI) showed prices nationally rose by 1.5 per cent in November. In Dublin, where supply shortages are most acute, prices were up 1 per cent in November and by 5.9 per cent on an annual basis.