Brexit to have minimal impact on world economy: Ex-Bank of England governor

Brexit won’t have a big impact on the European or global economies, former Bank of England governor Mervyn King said, offering a counterpoint to persistent concerns by global policy makers that the move could further dent already-weakening growth.
“I don’t honestly believe that Brexit has any great significance even for the rest of Europe, let alone the rest of the world. I don’t think the long-run economic consequences of the UK leaving the EU are particularly large,” King said, responding to questions after a speech at the IMF’s annual meetings in Washington.

He didn’t explicitly address the potential impact of a Brexit without an EU agreement, an outcome most analysts project would be far more damaging than one with a deal.
The effects of prolonged uncertainty over trade and Brexit have been an important topic of discussion at the IMF meetings. Back in London, Prime Minister Boris Johnson was forced Saturday to ask Brussels for a delay to the U.K.’s exit, though it’s not clear yet that it will be postponed.
“Britain is in the middle of the worst political and constitutional crisis for arguably several hundred years, but that is a matter of domestic concern,” King said.
The former BOE governor, who left office in 2013, has previously intervened in the Brexit debate. Last year he described Theresa May’s Brexit agreement as the “worst of all worlds.” He also criticized the BOE for wading into political territory for publishing analysis on the possible economic consequences of the divorce.
In his speech Saturday, King described the industrialized world as being in secular stagnation and said officials need to re-allocate resources to spur growth, looking beyond the use of only fiscal and monetary policy. Supply-side reforms and measures to correct unsustainable national saving rates would help, he said.
“We can see from the evidence that central banks can’t be the only game in town, because we haven’t got out of the low-growth trap,” said King, a Bloomberg Opinion columnist. “Everything now is put on fiscal policy, and I think this is again a mistake.”
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Boris Johnson sends unsigned letter to EU asking for Brexit delay

Prime Minister Boris Johnson sent an unsigned letter to the European Union requesting a delay to Britain's exit from the bloc and also said he did not want the extension after his latest Brexit setback in parliament on Saturday.
Johnson had previously said he would rather be "dead in a ditch" than ask for any extension to the Oct. 31 deadline.

But he was compelled, by a law passed last month by opponents, to send a letter to the bloc asking to push back the deadline to Jan 31 after lawmakers thwarted his attempt to pass his EU divorce deal on Saturday.
A government source said Johnson sent a total of three letters to Donald Tusk, the president of the European Council: a photocopy of the text that the law, known as the Benn Act, forced him to write; a cover note from Britain's EU envoy saying the government was simply complying with that law; and a third letter in which Johnson said he did not want an extension.
"I have made clear since becoming Prime Minister and made clear to parliament again today, my view, and the Government's position, that a further extension would damage the interests of the UK and our EU partners, and the relationship between us," Johnson said in the third letter, published on Twitter by the Financial Times' Brussels correspondent.
Johnson, for whom delivering Brexit is key to his plan to hold an early election, said he was confident that the process of getting the Brexit legislation through Britain's parliament would be completed before Oct. 31, according to the letter.
Tusk said he had received the request from Johnson.
"I will now start consulting EU leaders on how to react," he said on Twitter.
French President Emmanuel Macron told Johnson that Paris needed swift clarification on the situation after Saturday's vote, an official at the French presidency told Reuters.
"He signalled a delay would be in no one's interest," the official said.
However, it was unlikely that the EU's 27 members states would refuse Britain's delay request.
Johnson plan tipped on head
Johnson had hoped that Saturday would see recalcitrant lawmakers finally back the divorce deal he agreed with EU leaders this week and end three years of political deadlock since the 2016 referendum vote to leave the bloc.
Instead, lawmakers voted 322 to 306 in favour of an amendment that turned Johnson's planned finale on its head by obliging him to ask the EU for a delay, and increasing the opportunity for opponents to frustrate Brexit.
Johnson has previously promised that he would take the country out of the bloc on Oct. 31, without explaining how he would do this while also complying with the Benn Act.
"I will not negotiate a delay with the EU and neither does the law compel me to do so," he told parliament after lawmakers backed the amendment on Saturday.
Opposition politicians accused him of believing he was above the law.
"Johnson is a Prime Minister who is now treating Parliament and the Courts with contempt," John McDonnell, the opposition Labour Party's finance spokesman said.
"His juvenile refusal to even sign the letter confirms what we always suspected that Johnson with his arrogant sense of entitlement considers he is above the law and above accountability."
Scotland's highest court is due to consider on Monday a legal challenge that had sought to force Johnson to comply with the Benn Act. The court said earlier this month that government lawyers had given formal legal statements that he would abide by the Benn Act and it would be a serious matter if he did not.
"Boris Johnson promised #Scottish court he would comply with #BennAct & not seek to frustrate it. Looks like he's breaking both promises," Joanna Cherry, a Scottish National Party lawmaker involved in the case said on Twitter.

ADB cuts India growth outlook, says trade war, Brexit biggest global risks

The Asian Development Bank downgraded economic growth forecasts for India and Southeast Asia for 2019 as global risks from trade tensions to Brexit mount.
Gross domestic product in India will probably increase 7.2 percent this year, down from a December forecast of 7.6 percent, according to the ADB’s latest Asian Development Outlook report. Southeast Asia’s growth estimate was lowered by 0.2 percentage point to 4.9 percent.

A drawn-out or deteriorating trade conflict between China and the U.S. could damp investment, the ADB said, while the U.K.’s potential chaotic exit from the European Union and financial market volatility comes with additional risks.
“With various uncertainties stemming from U.S. fiscal policy and a possible disorderly Brexit, growth in the advanced economies could turn out slower than expected, undermining the outlook” for China and other economies in the region, Yasuyuki Sawada, the ADB’s chief economist, said in the report.
Key Insights
China’s growth forecast for 2019 maintained at 6.3 percent, with economy seen slowing to 6.1 percent in 2020
While the risk of sharp increases in U.S. interest rates seem to have eased, “policy makers must remain vigilant in these uncertain times,” Sawada said.
The biggest economic blocs in developing Asia will see softer consumer price growth this year than previously forecast.
Exchange rate volatility can be problematic, particularly for nations that rely on dollar debt. Suitable monetary tools, regional dialogue and deeper domestic markets must be considered to cushion impact of tighter external funding conditions

UK dismisses European Union's offer on Brexit backstop as 'disappointing'

UK Cabinet minister Andrea Leadsom rejected the European Union’s latest plan to break the Brexit deadlock, but said Parliament will be given more chances to vote on the deal if the bloc improves its “disappointing” offer before it’s too late.
Leadsom, leader of the House of Commons, said Saturday she was “absolutely astonished” that EU chief negotiator Michel Barnier was simply rehashing old ideas that Theresa May has already thrown out, dismissing his new proposal for the Irish border backstop as a joke.
“He seems to be on Twitter offering to go back to negotiations that were ruled out several months ago suggesting somehow that the United Kingdom should be split up and we should have a border down the Irish Sea,” Leadsom said in a Bloomberg interview. “That is disappointing. We are within a few days of the next meaningful vote.”
If the EU comes back with a plan to address British concerns — even after Parliament votes on the withdrawal agreement next week — the Commons will be given a say, Leadsom said.
“Certainly, in the event that we can get the changes that Parliament wants, then Parliament will be given opportunities to support the deal,” she said. “But we are focused on trying to win this vote on Tuesday.”

It’s now “vital” for the EU to “take very seriously” the clear proposals the UK has put forward for resolving the dispute over the so called backstop plan for the Irish border, she added.
The UK is on course to leave the EU on March 29 but there’s no deal in place to cushion the blow. The Commons will vote for a second time on whether to accept the divorce agreement on Tuesday, after rejecting it by an historic margin in January.
Since that defeat, May has been trying to get changes to the Irish border backstop but there’s no sign of a breakthrough in the increasingly acrimonious negotiations in Brussels. Barnier told ambassadors on Friday the blame game had started, according to a person familiar with the situation.
Barnier announced on Twitter a new package of concessions intended to resolve the contentious issue of the Irish border backstop, a policy intended to ensure there’s never a need for a “hard” land border between the UK and Ireland.
Barnier’s most striking idea was to allow the backstop to apply just to Northern Ireland, rather than the whole of the UK. But May has long said this would be unacceptable, and negotiators had already rejected it on Tuesday, according to another person familiar with the talks.
The EU also offered to strengthen other provisions in the deal — on arbitration and good-faith clauses — but the UK side said it wasn’t enough. British politicians worry that the UK could be trapped against its will in the backstop and bound by EU trade rules potentially forever.
“If the EU doesn’t enable us to resolve this issue about the permanent nature of the backstop, then in effect what the EU is pushing us towards is leaving the EU without a withdrawal agreement at all,” Leadsom said. A no-deal Brexit will be “a big problem” for Ireland, France, Poland and Germany, she added. “For particular nations amongst our EU friends and neighbours there would be very real issues.”
May has promised that if Parliament rejects her withdrawal treaty, it will then get a vote on whether to take the country out of the EU into legal limbo -- an option previous ballots have shown it will reject. Then there will be a vote on postponing the March 29 exit day.

Pound's stomach-churning ride to get worse as crucial Brexit vote nears

At one point Friday, the pound swung between gains and a two-week low as traders parsed contrasting headlines about the progress of Brexit.
Those swings may be dwarfed next week as UK Prime Minister Theresa May puts her divorce deal to a vote yet again in Parliament. If May can’t gain the backing of lawmakers for her plans, she will hold a vote on avoiding no deal and another on extending Article 50’s March deadline.

Sterling has sold off over the past week as the mood music on the prospects of reaching a deal with the European Union before Tuesday’s vote has soured, with the UK so far failing to get the concessions it wants on the Irish border.
“Should next week’s votes prove to be insurmountable obstacles to May’s deal, we think the pound may struggle to perform until there is more clarity on the outcome of the Brexit process,” said Credit Agricole SA strategists including Valentin Marinov. Still, they “are constructive on the pound because we believe that even an imperfect Brexit deal would be preferable to a no-deal Brexit for the MPs.”
The most likely scenario, according to a Bloomberg survey of banks, is that May’s deal fails to pass and Parliament votes in favor of a delay to the process. This could usher in a pound move up to $1.33, according to the survey. That would add to the currency’s gains this year that have made it the best performer among Group-of-10 peers.
Optimism on this outcome could be short-lived depending on the EU’s response following any vote to postpone Brexit Thursday, according to Canadian Imperial Bank of Commerce’s head of Group-of-10 strategy Jeremy Stretch.
ALSO READ: UK gets EU ultimatum to come up with fresh plans to resolve Brexit deadlock
“Any sterling rallies on Thursday night on a vote to push back Article 50 could be compromised on Friday as the EU comes back with a demand saying this is the price you have to pay for an extension,” he said. “Maybe that price will be sufficiently worrisome to make the market reconsider.”
Implied volatility in the pound-dollar pair touched the highest since mid-January on Friday, as traders sought to hedge against price swings. Risk reversals, an options gauge of sentiment and positioning, are fairly balanced between pound calls and puts over one week. The Bloomberg survey found the pound could drop as low as $1.20 on a vote for no deal or rally to $1.38 if May’s plan unexpectedly goes through.
ALSO READ: Explained: What happens behind the scenes of a Brexit vote in UK Parliament
With continued uncertainty over what exactly will be offered to lawmakers on Tuesday, and faced with big swings whatever the outcome, some are still opting to stay on the sidelines. There was very little volume in trading of the U.K. currency in the past week, according to Aberdeen Standard Investments fund manager Luke Hickmore.
“It’s almost impossible to trade, certainly in spot markets, because invariably you are running into headline risk and that headline risk is so extreme that you can’t legislate for it,” said CIBC’s Stretch. “Outside of options it’s very difficult to play with any real conviction.”

As no-deal Brexit looms, here's the likely impact on key industries

With just six weeks to go until Brexit day, U.K. Prime Minister Theresa May continues to wield the threat of walking away from talks as a negotiating tactic.
Companies are taking it seriously, stockpiling food, drugs and manufacturing parts. Governments are also kicking into action, but what they can -- or want -- to do is limited. The most catastrophic effects such as a rupture in the multitrillion-dollar derivatives market or the grounding of planes have probably been avoided.

But bottlenecks that leave food imports rotting in ports remain a real risk, and there’s still a big question mark over what happens to flows of data that are crucial for businesses and governments. The European Commission is taking measures to protect the bloc, while telling member states not to do anything that would make life too easy for the Brits.
Here’s a look at what a no-deal would mean for key industries:
Finance: the worst averted
The EU and the U.K. aren’t really cooperating on no-deal planning except in one major area -- finance -- where both sides would stand to lose from a big market meltdown. Cooperation agreements will enable U.K. and EU regulators to supervise each others’ markets, and there’s a plan in place to avoid a cross-channel rupture in the multitrillion-dollar derivatives industry by ensuring EU banks can continue settling trades at clearinghouses in London. Another agreement allows mutual funds and hedge funds in the EU to continue to delegate trading to staff in London.
But the financial industry is pressing for further action from policy makers so there are no hiccups in trillions of dollars of another type of derivatives contracts that aren’t settled at clearinghouses -- over-the-counter uncleared swaps traded directly between buyers and sellers. Lobbyists are also calling on the EU to allow British exchanges and trading venues to be used for equities and derivatives transactions before they are then settled at the clearinghouses.
Banks will also have to deal with the fallout of a currency shock in the event of no-deal, as analysts predict sterling could plunge as much as 20 percent.
Data: hoping not to get caught
Data now flows freely between the EU and the U.K. as they both follow the same rules. With a no-deal Brexit, while the U.K. has said data will still be able to flow, Europe has given no reassurance the same will apply going the other way. To calm nerves, both the British government and the U.K. data regulator are advising companies to hunt down all data transfers coming into the U.K. from Europe, and make sure they have appropriate safeguards in place. Essentially this means a lot of paper work, including tasks from signing up to internal code of conducts, to adhering to standardized clauses on transferring data.
All of this is short-term advice, as the U.K. says it’s aiming for a so-called adequacy agreement with the EU, which would mean data flows can carry on as they did before.
The risk is slim of the EU demanding a halt to data flows to the U.K. -- such an act would be close to declaring war -- but the danger of an activist spotting an “illegal’’ data transfer from one multinational to another is high, and companies will be readying themselves for potential lawsuits.
Security: spies will be alright
European intelligence-sharing networks won’t change substantially with Brexit, according to the chief of the U.K.’s foreign spy agency, who downplayed the effect a no-deal departure on security across the continent. “The relationships between European countries that exist on intelligence and security are not within the competence of the European Union and it does not, even now, therefore cover these relationships,” MI6 head Alex Younger said. However, U.K. Home Secretary Sajid Javid has warned that that a no-deal Brexit would mean the U.K. loses access to some pan-European security capabilities.
If no deal is struck, police have warned that cooperation will be slower, more bureaucratic and less effective than it is now thanks to Europol and the European Arrest Warrant. On Sept. 5, the U.K. issued Europol warrants for two Russian nationals over the attempted murder of a former spy and the use of a Novichok nerve agent on British soil. Under current rules, if the suspects travel within the EU, another member state would automatically arrest them. Outside of the bloc, that reciprocal arrangement would depend on the U.K.’s relationship with individual nations.
Food: the fridges are full
Supermarkets and their suppliers are stockpiling food, but all frozen and chilled storage is already being used and there is limited warehousing space left. They are also attempting to find alternative supply routes, but there are few options and not enough ferries available. Retailers rely heavily on European supply chains, with one-third of food in the U.K. coming from the EU. Their main concern is disruption at the crossing between Calais and Dover. The government has said it would wave in most EU traffic, but that won’t solve delays going the other way.
Airlines: fairly smooth flying
Following an agreement between the U.K. and the EU, airlines from both sides should be able to carry on flying unhindered to each other’s territory after March 29. The accord extends to overflights and refueling stops and also extends the validity of safety certification that might otherwise be voided after the split.
British-owned carriers need to take further steps to carry on operating solely within the EU, and vice versa. In order to do that airlines must acquire overseas licenses -- with EasyJet Plc setting up in Austria and Ryanair Holdings Plc, which is Irish, securing permission for domestic U.K. flights.
Meanwhile, the world’s biggest caterer to the aviation industry has begun to amass food and cutlery. Gate Gourmet, which serves 20 airlines at 10 U.K. airports, is accumulating enough supplies to see it through about 10 days of disruption -- including some items that need to be kept cold.
Health Care: Drugs and Blood
The government is making plans to accumulate drugs and blood products in the event of a no-deal departure. And it’s telling patients not to build their own private stashes at home. Pharmaceutical companies are booking space on planes to avoid delays at ports, and Novo Nordisk, which makes insulin, aims for an 18-week supply.
Manufacturing: Stockpiling parts
For British manufacturers that rely on imported parts, no-deal is a nightmare. Airbus has been laying in parts at its plants in the U.K. and Germany, enough to cover production for one month. Jet-engines giant Rolls Royce Holdings has moved the approvals process for its products to a facility in Germany and is storing up components. The car industry has also been hoarding extensively: Aston Martin has plans to ship car components via air freight to avoid using Dover, while Volkswagen-owned Bentley has been supplying parts through an alternative port for the last eight months. Companies also are prepared to idle factories.
Channel Tunnel: open, but on EU’s terms
Rail services through the Channel Tunnel that connects Britain to mainland Europe will continue for three months after March 29. The European Commission’s unilateral proposal would apply to all traffic -- passengers, cars and freight -- and is contingent on the U.K. side maintaining existing EU safety standards and rules. The commission said the three-month period would allow the two sides to come up with longer-term solutions.