Top stories

  1. Prime Minister proposes customs union plan
  2. Bank of England suggests ‘new dawn’ for pay growth
  3. Britain’s weak public finances risk recession warns IMF

Stat of the day

0 per cent – the rate of GDP growth for the UK economy in August, according to the latest figures from the Office for National Statistics.

Prime Minister proposes customs union plan

The Daily Telegraph (p1, £) reports that Prime Minister Theresa May will seek to persuade her cabinet to agree a backstop plan that would keep the UK in a customs union with the EU, avoiding a hard border in Northern Ireland. The plan would involve the UK remaining in a customs union until a free trade deal with the EU is agreed. This development reflects comments by the EU’s chief negotiator Michel Barnier, who claimed that a Brexit withdrawal deal could be achieved by next week, but only if Theresa May abandons her red lines and agrees to a customs union (The Guardian, p9). The prime minister risks a backlash from her DUP colleagues however, who have threatened to block the upcoming Autumn budget if Mrs May compromises further on Brexit, reports the i (p9).

Meanwhile, Reuters (online only) reports that the Bank of England is increasing its contingency planning for Brexit, asking lenders to prepare to provide six-hourly checks on balance sheets in the days after a possible ‘no deal’. It comes after the Economic Secretary to the Treasury, John Glen MP, has warned that Brexit uncertainty is taking its toll on the City, conceding that the financial services sector will have lost 5,000 jobs to Europe by day one of Brexit, according to Sky News (online only).

Bank of England suggests ‘new dawn’ for pay growth

Andy Haldane, chief economist at the Bank of England, suggests there is a ‘new dawn’ for pay growth as wages begin to rise, citing compelling evidence of an upward shift in pay in the private and public sectors, reports the Financial Times (p2, £). This follows the worst decade for wage growth since the 1930s. Haldane admitted this is partly due to the rise of the gig economy, as job insecurity reduces workers’ pay powers and increases income uncertainty (The Guardian, p29). The Times (p33, £) adds that other structural factors remain that continue to pressure wages, such as de-unionisation and automation.

Britain’s weak public finances risk recession warns IMF

The International Monetary Fund (IMF) has warned that Britain’s public finances are some of the worst in the world, with increasing debt and a lack of public assets leaving the UK dangerously exposed to a recession, The Times reports (online only, £). IMF figures show that the British government has less than £3tn in assets but £5tn of liabilities, indicating a negative net worth of more than £2tn. Countries with such a deep negative net worth are likely to tax more heavily in the future to rebalance this balance sheet (Financial Times, online only, £). The IMF report looked at the assets and liabilities of 31 countries, finding the UK in a worse position than every country apart from Portugal (The Independent, online only).

Latest from UK Finance

Banking in the cloud – what happens next? Andrew Reeves, Managing Director for Temenos Cloud, explains in today’s guest blog.

News in Brief

Over $500bn in bonds may need to have their documentation rewritten because of the shift away from the Libor benchmark, says law firm Linklaters (Financial Times, p13, £).

The UK and China are planning to link their stock exchanges, allowing companies listed on one exchange to issue shares on the other, according to Bloomberg (online only).

Large employers could be forced to publish their ‘ethnicity pay gap’ under new government plans to create a fairer workforce, reports the Daily Telegraph (p1, £).

The EU is pushing for a new tax on tech giants by Christmas, which could raise £4.4bn a year across Europe, says Pierre Moscovici, head of tax for the European Commission (BBC News, online only).

Cryptocurrencies do not pose a risk to financial stability, a report from law firm RPC reveals, however it suggests regulation is required which could take the Financial Conduct Authority up to two years, reports City A.M (p6).

What the commentators say

Writing in the Financial Times (online only, £), Philip Stevens says that Britain and France’s similar global outlooks, particularly in the area of defence, means both countries actually need each other. While “older rivalries and jealousies are never far below the surface”, when Emmanuel Macron’s diplomatic adviser, Philippe Etienne, spoke at Chatham House last month, Mr Stevens believes his remarks on France’s overarching goals “could have been given by a senior British adviser”. The challenge for each country is to “match global commitments”, such as the renewal of nuclear deterrents, to “diminished national resources” and Mr Stevens says this could be met be “pooling research, technology and industrial capacity”.

Columnist Simon Nixon argues in The Times (p37, £) that the global rules-based system is under threat and that the UK should fight to defend it. He points to recent events such as US President Trump’s America First approach to trade and Italy’s disregard for the eurozone’s fiscal rules as a sign that the global rules-based order risks suffering a catastrophic loss of confidence, with “potentially devastating economic consequences”. Nixon asserts that that the UK has a strong interest in restoring trust in this system as it leaves the EU and prepares to fall back on the WTO rules, and that this should encourage efforts to tackle money laundering.

Calendar

  • Vince Cable and James Brokenshire address the Home Builders Federation GMI Conference
  • RICS Residential Market Survey
  • CBI publishes the ‘Funding our Future’ financial services report
  • Bank of England Credit Conditions Survey, Q3 2018
  • Bank of England Bank Liabilities Survey, Q3 2018

For a full list of upcoming UK Finance statistics releases, please click here.

News in brief – 11 October 2018