Yesterday Theresa May announced her intention to hold a general election on 8 June, and today (Wednesday 19 April) the House of Commons has approved a motion enabling it to go ahead: Parliament is expected to be dissolved in a fortnight and the Conservatives, Labour, Liberals, SNP, and other political parties will tell their candidates to go back to their constituencies and prepare for… what?
The polls currently predict an outcome of 42% Conservative to 27% Labour which would produce a landslide for the Tories, and a significant improvement on the UK Government’s current working majority of 17. Predicting election outcomes is a perilous activity and not one I am about to embark on. However, if the pollsters and pundits are right, and the election results in an increased Government majority, and MPs having been elected on a clear Brexit mandate, negotiators will be in a stronger position when dealing with the EU, and the UK Parliament is less likely to amend any agreement.
While this doesn’t stop the Article 50 clock ticking down towards 2019, there will also be less pressure for the government to deliver transitional arrangements because the spectre of the expected 2020 election will be gone.
So what does this mean for our financial services sector and for Jersey?
Sterling has already jumped in response to the prospect of a stable, longer term administration: Deutsche Bank, one of the biggest sterling bears now says it will be closing out all its bearish FX trades and intend to review their sterling forecasts.
From Jersey’s point of view, if the election results in a longer term and more stable perspective, it will all add to the confidence felt by industry which has already been building. Many people have told me that 2016 was a very good year, and this year was looking good as well. That optimism is prevalent elsewhere too: the IMF have just increased their forecast for the UK economy to 2% growth for this year.
From our point of view, greater certainty about the prevailing wind gives us more time to adjust our sails. This was a point I made recently at an IoD lunch a fortnight ago, and Theresa May’s announcement only reaffirms that view.
From the UK’s point of view, to make up for the loss of the single market, the UK will need a combination of a reasonable trade deal and a significant pivot towards the rest of the world. The UK is adjusting its sails while Jersey embarked on the same outward-looking journey about a decade ago. We did this because we could see the demographic slowdown and public finance strains in Europe coming and so, while nurturing our traditional business sources, we pushed out into the growth markets with the result that now half of the new investment we handle originates from outside the UK time zone.
We are in a better position fundamentally because of this: any uncertainty in the European market has much less impact on opportunities elsewhere. If you want evidence that nations can prosper without being in an economic/political bloc then consider this group of the five largest economies in the world: China, USA, Japan, Germany, and UK. By 2019, only one of them will be in the EU.
Instead of looking at the inevitable uncertainties of the Brexit negotiations, consider what we know:
- Our finance industry will remain in a solid position, supported by a regulatory regime which is recognised as one of the world’s best (MONEYVAL gave our legislative and regulatory framework the highest rating to date of any jurisdiction assessed)
- We have very competitive access to the markets of EU member states and expect that to continue
- We’ve signed up to international standards including the OECD’s Base Erosion and Profit Shifting programme and the Common Reporting Standard
The endorsements Jersey has been given have not disappeared, we know that Jersey’s Government has a strategy for dealing with Brexit, and we know that our relationship with the UK remains strong.
We know too that political instability drives business to safe locations such as Jersey, and the continued growth in global wealth and cross-border investments means that demand for Jersey’s services is also set to grow. Finally, we know that the industry is fleet of foot, has always been innovative and has shown itself able to adapt when required.
The implications of Brexit will be an important part of the agenda at Jersey Finance’s Annual Private Wealth Conference, in London on 16 May, and our panel of expert speakers will be able to comment on the landscape as it stands there. One thing is for sure, we’ll be able to demonstrate that Jersey remains a safe harbour in an uncertain world.