(Bloomberg) — A deal on the Northern Ireland protocol would unleash tens of billions of pounds in business investment for the UK, boost growth and hand the government more funds for public services or tax cuts.
The conclusion by two prominent economists is a reminder of the economic fortunes at stake in talks about the post-Brexit trading arrangements for Northern Ireland. Concerns raised by the Democratic Unionist Party and hardliners in the ruling Conservative Party have left a potential agreement teetering.
British businesses have built up a cash warchest of about £100 billion ($121 billion) since the pandemic but investment has stalled due to uncertainty about the UK’s relationship with the European Union since leaving the trading bloc, said Kallum Pickering, an economist at Berenberg Bank UK.
“If you get rid of Brexit uncertainty, business can start to use some of this cash to invest,” Pickering said. “That will help sort out low growth. While the Irish border problem is alive, there is always the risk the UK could end up in a trade war with the EU.”
Karen Ward, European chief market strategist at JPMorgan Asset Management and a member of Chancellor of the Exchequer Jeremy Hunt’s economic advisory council, also believes an Irish border deal would deliver a significant boost to business investment and growth.
“Companies need certainty,” Ward said. “You can’t entice businesses to spend with low interest rates and tax incentives, it never does the job,” Ward said in an interview on Bloomberg Radio on Wednesday. “It would be really meaningful.”
“With investment, it solves all the other economic ills that we have, which is low productivity, low real wages, fiscal drag. It really is the secret sauce for economists, business investment.”
Prime Minister Rishi Sunak had been hoping to strike an agreement this week but Jeffrey Donaldson, who leads the DUP, said the terms were “not acceptable” since they would require Northern Irish businesses to align with EU regulations — even if they don’t leave Northern Ireland.
The government is keen to secure the backing of the DUP to ensure a deal is sustainable and remove any lingering uncertainty.
The Office for Budget Responsibility, the government’s fiscal watchdog, estimates that Brexit will knock 4% off the level of GDP, almost half of which has already happened. It’s expressed particular concern about the uncertainty that’s come with debate over the protocol.
Last March, the OBR warned there was “significant uncertainty around the longer-term operation of the protocol” and in November said business investment was being “held back … by elevated uncertainty” along with other factors.
Pickering said the economic rewards of an agreement could be substantial. He estimated that removing uncertainty could unleash investment growth of 10% a year, which would add as much as 0.5% to GDP a year and increase potential tax revenues.
Business investment stagnated after Brexit, having grown 40% between 2010 and 2016. There was no growth in business spending between 2016 and the pandemic in 2020, at which point investment crashed.
“I’ve become increasingly convinced that the bigger effect is the uncertainty effect,” Pickering said. “On trade, there has been a lot of switching from EU to non-EU trade and migration has proved stronger than expected.”
“So if you got rid of uncertainty over the Irish border – the final piece of the Brexit puzzle – you may get catch-up on business investment.”
He said an investment spree would be a textbook response in an economy facing constrained supply, like the UK, as businesses chase excess demand. The OBR would probably reflect that by upgrading Britain’s growth potential once there was evidence that the uncertainty is clearing, he added.
Ward added that the UK has fallen behind peers. “UK business investment is about the same level that it was in 2016. The likes of France and Spain – those numbers are around 20% higher,” she said.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.
The S&P/TSX composite index was up 0.05 of a point at 24,224.95.
In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.
The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.
The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.
The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.
This report by The Canadian Press was first published Oct. 10, 2024.
