Dear Boris, don’t blow Brexit
GlobalCapital has penned an open letter to UK prime minister Boris Johnson ahead of his negotiations next year on the UK's future relationship with the European Union.
Dear prime minister,
Congratulations on your election victory. It seems to have brought many investors back to the UK, which is something to be celebrated after a depressing time for the market since the Brexit vote.
UK equities have ended the year on a high, with the FTSE 100 and FTSE 250 up 6% and 4.7% for the month of December.
Investors have also started to reallocate capital to the UK. In fact, according to flow data from Bank of America and EPFR Global, $5.7bn has returned to UK stocks, reversing a trend of redemptions. Investors pulled $29.8bn from the market between the Brexit referendum in June 2016 and September 2019.
If your negotiations next year go well and you do manage to secure a good deal with the EU, that supports the UK economy, then we expect this to continue.
Therefore, we are asking you to be responsible and patient next year in negotiations. Please do not use this opportunity to pursue a damaging Brexit to enable deregulation and lowering of standards.
First, those would lead to the UK facing hard trade barriers with Europe for the first time for decades, which would do immeasurable damage to a UK economy that primarily trades with the countries you often call “our European friends”.
We salute your ambition for a global UK but we already are global and no trade deal you could do with other countries will make up for losing access to the European market.
We need to be able to trade with Europe; our service-based economy in particular relies on European business and clients.
The financial services industry in particular would suffer from what media in the UK call a “hard Brexit”.
Finance is a regulated industry. Deviating from European regulations would make it harder for UK-based entities to sell financial services to the continent. London, as you well know from your time as mayor, is Europe’s primary financial hub. Companies from all over the world use it as a gateway to Europe, one of the world’s largest markets.
If UK entities lose access to the EU market — 446m people without the UK — that gateway function will disappear. Firms, whether UK-owned or foreign-owned, will have no choice but to use bases in the EU to conduct more of their business.
London would become less attractive as a destination for talented financial services professionals, whether British or international, while UK nationals will find it harder to work across our continent.
London could lose its status as one of the pre-eminent global financial hubs.
Even if the UK's ambition for the City is no more than domestic, we would warn you that the City’s strength rests on its reputation for excellence and its gold standard financial regulation.
If you damage that by deregulating, hoping to quickly make up for the loss of access to European markets, it will take decades to restore that reputation. As we saw in 2008, light regulation is often punished by a flourishing of irresponsibility, followed by financial disaster. More than a decade on, for example, markets are still coping with the fallout from the Libor rigging scandal.
The present bullish investor sentiment towards the UK depends on your pledge to do a good deal. It will evaporate, should you pursue a Brexit which damages the economy and the City.
The UK needs a close trading relationship with its European partners. This may not be the desire of some of the Eurosceptic wing of your party but you have a large enough majority to be able to ignore them.
We hope you succeed in securing Britain a good Brexit deal. The future of its markets depend on it.
Don’t blow this chance.
PS If you can stop that cheeky so-and-so Dominic Cummings briefing the media we suspect investor goodwill towards you might last even longer.