Today the Podcast Podcast Economy
Brexit: Boris Johnson's government doubles its budget
In three months, the United Kingdom will no longer be part of the European Union. If this time the deadline set for London and Brussels is respected. In any case, with the inauguration of Boris Johnson as Prime Minister, determined to make Brexit a reality, Brexit is back in the news. The United Kingdom is preparing.
To show its determination in Brussels or real need, the British Treasury doubles the annual budget devoted to the preparations for Brexit. Up to 4.2 billion pounds can be mobilized and more than a billion more will be released immediately. Another will be later when needed. Billions that will be used, among other things, to ensure the supply of drugs to avoid the risk of shortage.
EUR 377 million drawn from this new envelope will go to the preparation of the border. This should notably make it possible to improve the infrastructures of the ports. With the new customs formalities, some fear congestion of heavy goods traffic. In March, some French ports and transport federations were worried about the level of preparation on the English side. An information campaign for British companies will be launched. A smaller envelope of about 120 million euros will also be dedicated to supporting businesses.
Companies that must prepare again! The Confederation of British Industry assures that neither the European Union nor the United Kingdom are ready for an exit without agreement, despite the additional delay compared to the initial timetable.
Part of the preparation in the industry resides in stockpiling to avoid supply disruptions in the event of logistical difficulties at the border. Provisions had been made for the month of March. This had, moreover, artificially boosted growth. But at least some of the stocks will have been sold in the meantime.
Investment in the car is worth
But, no need to wait, the Brexit has already concrete consequences, on the automobile for example. The form that will take the divorce is still uncertain and after the twists of spring, also difficult to have confidence in the calendar. Investment does not mix with uncertainty. As a result, between January and June, in the automotive sector, promised new investments were down 70% compared to the same period last year. Figures that, however, do not take into account the expenses announced in July by Jaguar Land Rover to launch the manufacture of electric cars. But this is an exception, says the Association of Automobile Manufacturers and Vendors.
Production has fallen by 20%, in part, it is true, because of global instability. But Brexit is one more stone in the shoe sector. The cost of a no deal for the automotive industry is estimated at 4.5 billion pounds a year in tariffs. So, Carlos Tavares, the boss of PSA, does not exclude to close the factory of Ellsmere Port.
Sterling loses value
Another tangible consequence is that the beginning of Boris Johnson's term, which promises that Brexit will take place on October 31, whatever happens, has made the pound sterling move.
Before recovering a little early in the week, the pound lost 1.15% against the greenback worth only $ 1.22. It had not been seen since March 2017. It must be said that the fall had already begun. Since May and the prospect of the arrival of Boris Johnson as Prime Minister, the British currency has lost about 3% against the dollar.
Several consequences: it is rather a priori good news for British exporters and tourism. For consumers who pay in another currency, the price drops automatically. This is especially advantageous for companies selling in another currency: at fixed prices in dollars, at the time of conversion, they will have more books than before. That's why UK multinationals' stock prices tend to go up when the pound comes off the hook.
Consequence on the household basket
But this fall has not only advantages. Due to the same mechanism, products imported into the UK cost more. One-third of what the British put on their table comes from the European continent. The depreciation of the pound therefore weighs on the household basket.
In addition, British companies are becoming easier prey to American and European appetites that see their purchasing power increase in dollars or euros. It is therefore more affordable for them to buy British companies.
Analysts have recently pointed the finger at this phenomenon with the purchase of Merlin Entertainments, known for the Madame Tussauds wax museum and the London Ferris wheel by Lego, the Danish toy giant.
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