Brexit relief for UK economy might not last long

Britain’s Prime Minister Boris Johnson, and his partner Carrie Symonds, at 10 Downing Street in London in the early hours of Friday morning, following Johnson’s landslide victory in Thursday’s general election. (AP)
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Updated 14 December 2019

Brexit relief for UK economy might not last long

  • Tory landslide gives prime minister biggest majority since Margaret Thatcher

LONDON: The UK’s economy will cast off some of the Brexit uncertainty that has held it back since 2016 after Prime Minister Boris Johnson’s election triumph, but the risk remains of another “cliff-edge” showdown with Brussels in a year’s time.

With the country’s exit from the EU on Jan. 31 now a foregone conclusion, the question for investors is whether Johnson will stick to his campaign promise not to delay the end-of-2020 deadline for a new EU trade deal.

That deadline is widely seen as tough to meet, given the scale of issues to be resolved.

In the short term, the biggest election victory for Johnson’s Conservative Party since Margaret Thatcher’s 1987 triumph removes the deadlock in parliament over how, or even whether, to proceed with Brexit.

Johnson said in a victory speech on Friday that the UK would leave the EU on Jan. 31 “no ifs, no buts, no maybes.”

His election win also banishes the prospect of a sharp shift to the left under the Labour Party which promised nationalizations, more power for trade unions and a much bigger role for the state, which had worried many business leaders.

“For Brexit, this all means that Johnson’s deal will be ratified, most likely allowing the UK to leave the EU at the end of January,” economists at ING said in a note to clients.

“But more importantly, it could give the prime minister the political breathing room to ask for an extension to the transition period.”

The pound jumped by the most in nearly three years on the first sign of the scale of Johnson’s victory and shares in companies relying on the domestic economy rose.

Investors pared back their bets on the Bank of England cutting interest rates as the uncertainty about Britain’s economy lifted, at least in the short term.

The world’s fifth-biggest economy has slowed since voters decided to take Britain out of the EU three and a half years ago.

Leaving the bloc, which accounts for nearly half the country’s exports, is seen as a drag on its economic growth over the long term.

But the new sense of clarity about the government’s direction, at least in the short term, is likely to lead to a pick-up in the pace of growth in the coming quarters, economists said.

UK government bond prices fell sharply as trading in London’s gilt markets opened, helped not only by the conclusive election result but also by signs of an end to the US-China trade deal that has weighed on the global economy.

But economists turned their attention quickly to what the election result meant for Johnson’s longer-term Brexit plans.

He promised during the campaign not to extend a Brexit transition period beyond Dec. 31 2020.

That raises the prospect of tariffs and other barriers coming into force for Britain’s trade in goods and services with the EU in just over a year’s time.

Economists at RBC Capital Markets said the new government would probably try to keep a no-deal Brexit on the table for as long as possible to maintain leverage with the EU in the trade talks.

“However, with such a comfortable winning margin Johnson is not reliant on any faction of his party, in particular the hard-Brexiteers who might have tried to steer him toward a hard Brexit at the end of the transition period,” they said.

“Some form of extension now looks more likely even if some effort will be made to give the impression that is not the transition period that the Conservative Party promised not to extend in its manifesto.”

But economists at Citi said they thought Johnson would not try to delay the transition phase, having won support from voters who backed the Tories for the first time over their tough stance on Brexit.


Iraq pledges full compliance with OPEC+ oil cuts

Updated 07 August 2020

Iraq pledges full compliance with OPEC+ oil cuts

  • Prince Abdulaziz bin Salman Al-Saud, the Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, reaffirmed their commitment to the cuts
  • Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month

DUBAI: Iraq has pledged to meet in full its obligations under the OPEC+ oil production cuts that have been credited with rebalancing global crude markets after the mayhem of April’s “Black Monday” when prices crashed around the world.

In a telephone call between Prince Abdulaziz bin Salman Al-Saud, Saudi Arabian energy minister, and his Iraqi counterpart, Ihsan Ismail, the two men reaffirmed their commitment to the cuts, which have helped to pull the oil price back from historic lows.

Brent crude, the global benchmark, has more than doubled in the past three months.

Under tough economic pressure, Iraq had struggled to meet the full cuts, but Ismail promised to reach 100 percent this month. Iraq has now committed itself to an ambitious program of compensation to make up for past overproduction.

Iraq will further reduce production by 400,000 barrels per day this month and next, Ismail said, bringing its total cut to 1.25 million barrels daily. That level of cuts could be adjusted when final estimates of compliance are assessed by the six “secondary sources” that monitor OPEC+ output.

“The two ministers stressed that efforts by OPEC+ countries toward meeting production cuts, and the extra cuts under the compensation regime, will enhance oil market stability, help accelerate the rebalancing of global oil markets, and send a constructive signal to the market,” a joint statement added.

Prince Abdulaziz thanked Ismail for his efforts to improve Iraq’s compliance with the agreement.

Iraq had been the biggest laggard in the move toward 100 percent compliance by the 23 members of the OPEC+ alliance.

Officials in Riyadh told Arab News that Iraqi compliance had reached about 90 percent, a high level by the country’s previous standards but still short of the new targets.

Saudi Arabia has been forcefully advocating full compliance with the targets in an effort to remove oil from the global market as demand is still badly affected by the economic fallout from the COVID-19 pandemic.

The oil market will be under the spotlight later this month when the joint ministerial monitoring committee of OPEC+ energy ministers convenes virtually in the most recent of the monthly meetings set up to oversee the state of the global industry.

Oil had another strong week on global markets, breaking through the $45 barrier for the first time since early March on signs that the glut in US oil stocks was easing, as well as reductions in the amount of “floating crude” stored in tankers on the world’s oceans.

The price spiked on news of the Beirut explosion, which some analysts believed could herald a deterioration in regional security and a threat to oil exports.

Brent crude was trading at $44.70 on international markets.