11.07.2017

Expert Commentary: Focus on UK-EU relations after Brexit

by Dukascopy

Britain aims to stay in a good relationship with the European Union and continue cooperation on security and defence issues. What is your own opinion, will Britain be able to maintain a good partnership with the EU?

 

This is obviously the key question at the moment. We all hope that relations between Britain, the European Union and, of course, individual EU countries will remain cordial, though the negotiations are likely to be extremely difficult and complex, while there is a chance of tensions being raised and disagreements being voiced strongly at various points in time. What is important is that once negotiations are finished, we have good trading arrangements between the UK on the one side and the 27 EU countries on the other. At this point in time, it is impossible to know exactly what these trading arrangements are going to be.

 

Some UK employees tend to fill jobs by non-UK nationals despite risks of restriction on immigrants after Brexit. How do you see the outlook of the UK jobs market?

 

If you look at the jobs market in general, employment has risen strongly over the past few years and it is certainly true that a significant proportion of those new jobs have been filled by people from overseas, both from the inside of the European Union and outside as well. Lately, the UK economy has started to slow and it is not clear at all whether we are going to see the same pace of jobs growth. If indeed we see employment rise at all over the next year or two, the dynamics are likely to change in terms of deeper demand for overseas labour. What has been pretty clear over the past 10 to 15 years is that the skills contained within the UK were insufficient to meet demand in all sectors for labour. The UK has to decide whether it wants to continue a relatively easy immigration policy and, thus, find skills easily from overseas or it wants to attempt to mobilise the domestic labour force and upskill the British workforce. In the short-term, it is rather difficult to do the latter and there will always be a certain amount of immigration to fill labour shortages.

 

The Bank of England warned that living standards in the UK are likely to fall this year, raising inequality among Britons. In your point of view, could that be related to Brexit? How will the UK deal with that?

 

At this point, I would not agree with the statement. Certainly, if we look at living standards at the simplest level, prices are likely to rise more rapidly than pay. What we see in extremely broad terms is falling income in real terms for households that will on average suffer a declining purchasing power. That does not necessarily mean that we are going to see an increase in inequality. It might happen, but those two do not necessarily go hand-in-hand.

 

Analysts anticipate economic and political risks to downgrade the UK exports of goods and services as well as the country's attractiveness for investors. Do you share this point of view? Why?

 

For the UK exports, a more important factor would be the economic and political risks overseas. What really matters in that respect is what is going on in the export market rather than what is going on domestically. For example, the health of the US economy will eventually represent the size of the potential market for exports from Britain. In that respect thing are looking better in the sense that a number of countries have rejected extreme parties and, secondly, the Euro zone is looking more sustainable in terms of the recovery with fewer downside risks. There is number of risks everywhere, but, just to repeat, the more important set of risks comes from overseas, though those risks have somewhat reduced over the last six months.

 

400

 

 

Philip Shaw

Chief Economist at Investec

 

 


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