SOCIETE GENERALE: The UK is in for a 'rude surprise' over Brexit

LONDON — The British government faces a “rude surprise” as it tries to negotiate the UK’s exit from the EU, Brian Hilliard, a strategist from French banking giant Societe Generale has argued.

Writing on Wednesday, Hilliard points out that not only does the EU have “the stronger hand in the negotiations” but “will likely drive a hard bargain,” as well. All of this, he argues, will lead to a materially negative outcome for Britain once it has formally withdrawn from the 28-nation bloc.

“The UK’s bargaining position is weak, and the final outcome is likely to be one that inflicts material damage on the country’s export performance,” Hilliard writes.

“In particular, while the City of London is resilient, we expect a reduction in the exports of this key sector of the economy.”

The City of London is set to lose at least some of its appeal as a global financial centre after Brexit given that the loss of passporting rights — a system of common financial rules that allow UK based financial firms to access customers and carry out activities across Europe — seems all but certain given the government’s commitment to leaving the European Single Market.

Hilliard also notes that while exports of things like financial services will slow, so too will foreign direct investment into the country.

“Furthermore, there will be an added impact from the reduction in flow of foreign direct investment into the UK, as it will no longer be so attractive to foreign companies as a bridgehead to EU markets,” he writes.

“This should reduce the potential growth rate of the economy.”

Not only will exports and investment be hurt, but the ability of Britain to do a trade deal with the EU quickly is also called into question by the Societe Generale note, with the bank citing the refusal of the EU to carry out trade talks and settlement talks in parallel as a key reason why.

“This makes one even more sceptical than before that any meaningful progress can be made on trade talks before Brexit,” Hilliard writes.

“Recall from the EU’s timeline that it has allocated only 18 months in total for all the negotiations, which makes it absolutely crucial that a sensible transition deal be struck.”

May and her team are hopeful of holding divorce and trade talks in parallel, while the EU is adamant that the government cannot expect to negotiate a new trade relationship until terms of the initial divorce, including the multi-billion pound bill, have been agreed by all parties.

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