May Holds The Key to March as Brexit Options Bifurcate — Panjiva
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May Holds The Key to March as Brexit Options Bifurcate

Brexit 68 Cons. Staples - Food/Beverages 397 Energy - Conventional 273 Energy - Refined Oil 149 European Union 406 Health Care 108 Materials - Chemicals 93 Materials - Metals/Mining 482 Metals - Aluminum 159 Metals - Copper 39 Metals - Steel 360 Trade Deals 703 United Kingdom 194

The Brexit process continues to face significant uncertainty, with the next vote on the government’s plans by the British Parliament due on Jan. 29, the Financial Times reports. That follows a rejection of the withdrawal deal agreed with the EU by the Parliament by the largest defeat-majority on record, followed by a no-confidence motion that was won by the government.

It isn’t clear that a modest change in the withdrawal agreement would markedly change the parliamentary calculus. Instead it’s likely that the outlook for Brexit may bifurcate into “no deal” and “delay / cancel” options. The former is the default should nothing change from today.

The latter will require action by the administration of Prime Minister Theresa May. Indeed, the Prime Minister has reportedly indicated a willingness to delay Brexit, according to The Economist while similar comments had previously been made by the Chancellor of the Exchequer (Finance Minister) Philip Hammond.

There are three options. A simple delay to the Mar. 29 exit date would require unanimous approval from all 27 EU states, which would prove logistically complex and far from certain. Withdrawing article 50 and restarting the process is possible but time consuming, and it isn’t clear what would change over the following two years to ensure success.

That leaves cancellation and a new referendum. While a recent poll has shown a 12 percentage point spread in favor of a new referendum, Reuters reports, Prime Minister May has previously been set against a second referendum. The Conservative Party cannot bring a leadership challenge against her until Dec. 13 while the next general elections are not scheduled until 2022.

At the macro-economic level the most recent trade data for the U.K. suggests that an uplift in imports to prepare for Brexit might have been left late, if it will happen at all. Panjiva analysis of official data shows U.K. imports from the EU rose 2.2% in the three months to Nov. 30 on a year earlier, compared to 5.9% for those from outside the EU.

PICKUP, NOT PANIC

Chart segments U.K. imports by origin on a monthly and three-month average basis. Calculations based on ONS data.   Source: Panjiva

That could easily change. As outlined in Panjiva’s 2019 Outlook the U.K. depends on the EU for over 70% of its imports of food and over three-quarters of food imports. There’s also the risk of disruption to basic manufacturing – one reason why Honda and BMW are planning production shutdowns.

While food imports have had to increase significant due to issues of perishability there has been a marked surge in imports of basic materials and fuel with a 10.2% rise in November following an 8.2% increase in the prior three months. There’s also been a turnaround in healthcare industry imports including medicines which rose 2.4% in November after a 13.2% decline in the prior three months.

REGULAR GROWTH, NOT YET AN EMERGENCY YET

Chart segments U.K. imports from the EU by product. Calculations based on ONS data.   Source: Panjiva

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