For many businesses in Britain, Brexit already happened

The road to Brexit has slowed Britain's economic growth, discouraged investment, and damaged the reputation of the nation as a haven for commerce. Whatever happens next, the jobs and the money are unlikely to return. PHOTO: EPA-EFE

LONDON (NYTIMES) - In the political realm, no one knows how Brexit's long-running theatre of the absurd will end. But for much of the business world, Britain's departure from the European Union has effectively happened.

Nearly three years of uncertainty since the June 2016 referendum has forced companies to plan for the worst - the prospect that Britain could crash out of the bloc without a deal governing future relations.

The twisting road to Brexit has already slowed economic growth, discouraged investment, and damaged the reputation of the nation as a haven for commerce.

Global banks and other financial services companies are steadily shifting thousands of jobs and more than US$1 trillion (S$1.35 trillion) in assets to European cities to ensure that they are able to serve customers across the English Channel regardless of the rules that national regulators impose after Brexit.

Japanese carmakers have scrapped plans to expand in Britain, in part because Brexit undermines the country's virtues as a hub for European trade.

Whatever comes next - a deal with Europe, an unruly exit, or another vote that could cancel the proceedings, making Brexit the mother of all mulligans - the jobs and the money are unlikely to return.

The deadlock only deepened on Monday (April 1), as Britain's Parliament failed to reach consensus on the latest Brexit proposals.

"Multinational companies came here with a clear understanding that Britain would offer a stable place to do business in exchange for access to the European Union," said Mr Peter Dixon, a global financial economist at Commerzbank in London.

"The Brits have reneged on that contract. It's destroyed, if you like, the sense that Britain is such a great place to do business. It's a credibility hit. It's a deep wound."

Since the 1980s, Japanese automakers have invested in factories in Britain to exploit the country's duty-free access to Europe.

Before the 2016 vote, Nissan warned that leaving the EU could force the company to reassess its plans for its plant in Sunderland, in the north of England.

Months after the vote, Prime Minister Theresa May offered Nissan a mysterious cocktail of promises that won Nissan's confidence. But in February, the company said it would not build a new SUV in Sunderland.

At about the same time, Honda said it was closing a factory in south-west England, in the town of Swindon, eliminating 3,500 jobs. Honda's decision was motivated partly by a trade agreement that Japan struck last year with the EU. The deal eliminates the need for a factory in Britain, because Honda can now ship cars made in Japan directly into Europe without incurring duties.

If Britain leaves the European market, it would lose the benefits of the bloc's trade deals. In short, just as Japan and Europe are liberalising trade with each other, Britain is moving to impede trade with both.

"The big worry is investment," said Mr Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, an industry trade group. "Investors are just waiting to see, is it worth continuing to commit to the UK automotive industry?"

The British economy is now 1 per cent to 2.5 per cent smaller than it would have been without the Brexit vote, economists estimate. Much of the damage has come via the drop in the British pound, which has shed more than 10 per cent of its value against the dollar since the referendum.

The fall in the pound amounts to the market's expression that trade has been obstructed. Britain sells nearly half its exports within the EU.

Given that Britain imports more than it exports, the falling currency has pushed up prices on a broad range of goods, from fruits and vegetables to machinery. Inflation was the primary factor in median household income remaining flat in 2018, according to an analysis by the Institute for Fiscal Studies, an independent research firm in London.

Across Britain, business investment is expected to decline by 1 per cent this year, in what would be the weakest performance since the global financial crisis a decade ago, according to a recent forecast from the British Chambers of Commerce.

The impact will probably fall heavily on areas that need investment the most: manufacturing-dependent communities in the north of England and Wales, where jobs and living standards have declined. Such areas mostly voted to leave Europe, as people blamed globalisation and immigration for diminishing opportunities. Now, they stand to suffer even leaner times.

For more than three decades, London has attracted global banks, trading operations, hedge funds, asset managers and sovereign wealth funds from the Middle East and Asia. The city grew into a global centre of finance second to none, while the industry has employed more than one million people in Britain.

Brexit has put that status in jeopardy by forcing companies that serve European clients from London to move jobs and trading activity to cities like Amsterdam, Dublin and Frankfurt.

More than 275 companies are in the process of moving or have already shifted business divisions, employees and legal entities from Britain to the Continent, according to a recent report from New Financial, an independent research institution in London.

Banks alone are transferring £800 billion (S$1.4 trillion), while asset management and insurance companies are collectively moving £100 billion.

Some 5,000 jobs have left because of Brexit, and the trend is expected to expand as trading volumes shift and local regulators demand people on the ground who can be held accountable when trouble inevitably emerges.

Britain's departure from the European market would end the passporting rights that have allowed financial services companies to conduct transactions across the bloc as if it were one sprawling country. Financiers recognised early that they could not merely wait and hope that the politicians would find a way to protect their industry.

By the end of 2017, the industry was warning the British government that, unless a deal was completed soon, many companies would proceed with plans to move parts of their operations to the Continent. By the middle of last year, with no deal in sight, those plans became reality.

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