Bloomberg Businessweek

 ECONOMICS Bloomberg Businessweek August 20, 2018

29

*EXCLUDES TRAVEL, TRANSPORT, AND BANKING; VALUES IN CURRENT PRICES; DATA

(TOP): OFFICE FOR NATIONAL STATISTICS; DATA: BANK OF ENGLAND AGENTS’ SUMMARY OF BUSINESS CONDITIONS

world and its largest trading partner is the EU.

Bournemouth’s services exports totaled£873 mil-

lion ($1.1 billion) in 2015, according to the Centre

for Cities, a London think tank. The sector

accounts for almost 90 percent of employment

in the area. “Because it’s such a service-based

economy, the single market is really important

for Bournemouth,” says Clare Moody, a member

of the opposition Labour Party who represents

the South West England region at the European

Parliament in Brussels.

Membership in the 28-country bloc confers siz-

able beneits on U.K.-based companies: They enjoy

access to a market of 500 million consumers, free

low of data, and “passporting” rights, which allow

inancial companies to market products and ser-

vices in any EU country without having to set up a

branch there. The union also allows for free move-

ment of people, crucial to services companies that

employ European staf in Britain or send workers

on day trips to the Continent for such things as

installing software or drafting contracts.

Peter Phillips, chief executive oicer of Unicorn

Training Group Ltd., a Bournemouth-based com-

pany of about 130 that develops corporate educa-

tion programs on topics such as inancial crime

and data protection, says he’d consider opening an

oice on the Continent if U.K. companies lost their

ability to passport. “A lot of people would then have

to leave,” he says. “There’s a sense in the industry

that we still have no idea what’s going to happen.”

JPMorgan’s staf in Bournemouth, where the U.S.

inancial company ranks as the biggest employer,

are well aware of the risks. Just weeks before the

June 23, 2016, referendum, CEO Jamie Dimon and

then-Chancellor of the Exchequer George Osborne

visited the oice, which is located on a grassy cam-

pus just outside the town center, to warn that as

many as a quarter of the bank’s 16,000 jobs in the

U.K. could be lost if the country voted to leave

the EU. (Dimon’s doomsday message appears to

have fallen on deaf ears: The pro-Brexit vote in

Bournemouth was 55 percent, about 3 percentage

points higher than nationwide.)

Two years later, JPMorgan’s presence in

Bournemouth hasn’t shrunk. It hasn’t expanded,

either. The bank did announce plans last year to

add thousands of back-oice jobs in Europe. But

they’ll be in Poland, where wages are lower.

A pre-referendum analysis by the U.K. Treasury

presaged that a win by the “leave” camp would

unleash a yearlong recession. While that forecast

proved overly dire, there have been economic con-

sequences. The U.K. was the only Group of Seven

nation where growth slowed last year. Other

predictions from economists, including those at

the Bank of England, were on the mark: The pound

weakened in the vote’s aftermath, driving inlation

above the bank’s target of 2 percent and triggering

the irst interest-rate hikes since the inancial crisis.

There are more red lags. Growth in business

investment is running at 4 percent a year rather

than the 10 percent-plus that would be normal at

this stage of the economic cycle. Migration from

the EU to the U.K. has plunged by more than half

since the Brexit vote—and that’s without any formal

change in the government’s policy. Add it all up,

and you have what economists call a supply-side

shock. In February the Bank of England said the

U.K.’s potential growth rate, or the pace at which

it can expand without generating excessive price

pressures, has fallen to just 1.5 percent, compared

with about 2.5 percent previously.

“It’s not just that you’re not growing, it’s that

you’re shrinking relative to other countries,”

says Moody, the EU parliamentarian. She’s right,

in that the economic picture across much of the

Continent has improved while the U.K.’s has wors-

ened. “We are almost certainly in an opportunity

cost situation now, with unknown lost investment

that would have happened.”

The combination of factors that used to draw

Europeans across the English Channel—a robust

economy, a strong pound, and certainty over rights

to live and work—has lost some of its potency. In

Bournemouth, the tourism and health indus-

tries are struggling to recruit, having tradition-

ally relied on migration from the EU to ill posts.

Bournemouth University also had openings

recently that, for the irst time, had no applications

from EU candidates, according to one professor.

Brussels has said it won’t accept a divorce settle-

ment that allows British businesses continued and

unfettered access to the single market while permit-

ting the U.K. to impose curbs on migration.

If there’s no agreement reached by the prime

minister’s self-imposed deadline of March, British

companies doing business on the Continent will

immediately be subject to “host state rules.” That

means they’ll get the same treatment as, say, China,

when trading with or setting up a presence in one

of the bloc’s nations. “The commercial equation

that businesses have to take is, how much would it

cost us to comply with six or seven diferent regu-

latory regimes, plus the uncertainty of what a trade

deal is going to bring, plus I don’t know whether I

can send my service providers from the U.K. to go

in and put in the software in our customer oices

in Germany,” says Paul Hardy, Brexit director at law

irm DLA Piper in London.

○ Value of U.K.’s 2016

services exports, in

British pounds*

Europe

70.1b

Americas

39 .7b

Asia

24.8b

Other 8.1b

7/2014 7/2018

2

1

0

○IndexofU.K.

companies’ planned and

possible spending over

the next 12months

Manufacturing

Services

Brexit

referendum

⊳ Bournemouth

Beach in early May