Brexit: Jersey waits for the result

Thursday 23 June 2016

Most people in Jersey might not be able to vote in today's EU referendum, but the result will be keenly awaited by businesses anxious to see what effect it might have on our economy.

We might have smiled at Guernsey's misery, after a French politician described it as a “small, isolated Island on the EU’s border." But otherwise the debate has raged well to the north of our shores. Commentators have given their predictions, which range from the UK's decision having little impact, to it creating a major opportunity, to it undermining confidence and derailing economic recovery.

Either way, there is little Jersey can do to affect the decision, apart from read predictions as to what might happen. So, as the votes are cast, and we wait for the result, here's the view of Investment Manager Oliver Stones, of Quilter Cheviot:

“Now we hold our collective breath. With just hours to go before the vote on the Brexit referendum in the UK, after months of ‘crystal ball-gazing’ by every Tom, Dick and Harry (and me), in countless articles and through vociferous debates, we now find ourselves nervously close to the fateful decision to be made by the electorate of the UK in a historically critical plebiscite.

“But we in the Channel Islands, a British Crown Dependency are not included in this vote, despite the fact it could have serious repercussions for our economy. 

“The irony of the recent French Economy minister’s comments of the potential 'Guernseyfication' of the UK if they choose to leave the EU, invoking the picture of a 'small, isolated island on the EU’s border' is not lost on any of us. 

“But what the French politician missed was an important point in his island-comparison and explained by Geoff Cook, Chief Executive at Jersey Finance, who described the Channel Islands as 'small enough to be agile and to adapt to virtually any change in circumstances.'

“We are not like some lumbering giant oil tanker taking 20 miles to make a turn - 'We can engineer change a lot faster than other countries when required to do so and have shown that in the past' – comforting words indeed. 

“This reassurance is required as we know that we in Jersey are by no means immune from the health of the UK economy. When the UK sneezes we blow our collective nose. There are plenty of more gloomy politicians in Jersey who do not share Mr Cook’s optimism and are gravely concerned about our future in a UK-free Europe. There is already a deficit of empathy to Jersey’s economy in many parts of Europe, who have doubts about its tax status. A UK-free-Europe would not help to further our economic or social interests and would remove our strongest ally and partner.

“Let’s remember the economic background to this referendum. We now live in an Alice-in-Wonderland surreal world of negative interest rates. Currently $8 trillion of the global bond market (or 48%) is now less-than-generously offering negative interest rate returns. There is a growing global economic malaise that has pushed every respected international research institution from the OECD to the IMF to last week’s World Bank’s assessment of Global GDP for 2016 forecasting just 2.4% after starting the year with the expectation of 3.6% growth. 

“There is a continuing decline in Chinese economic growth and a glut in global commodities markets, most notably; oil. Lastly, and most immediately worrying, there is growing worry that the banks are facing a mini-systemic financial crisis where margin can only be improved by cutting costs, closing investment banking arms and shedding jobs. Not a pretty background to be ‘experimenting’ and taking ‘unnecessary risks’ with one’s economy and Jersey has already experienced some job losses in the financial sector.

“Confidence is a fragile flower and ‘uncertainty’ its nemesis. Even a ‘remain’ vote now might not save the UK from a technical recession this year as Q2 and Q3 GDP could see negative growth figures as plans to invest, buy new houses, fridges and cars have been put on hold at the household level as much as the commercial level, until the decision on the EU is known. This will in turn affect Jersey to some degree directly and tangentially in areas such as tourism and fishing.

“If the Brexit vote is successful there is a strong likelihood that we will see another significant fall in the value of Sterling on a trade weighted basis and specifically against the US$. Don’t forget Jersey’s currency is 100% Sterling – So how can we be immune from a Sterling crisis? 

“Some would even argue that our proximity to the continent increases our likelihood of having overseas assets and hence a greater exposure to currency fluctuations.

There is a general agreement that Sterling could fall by 25% as foreign investors withdraw their assets. 

“UK fund managers have already seen a 20% decline in assets under management over the last year. Last week alone it has been reported that we saw £1.1 billion repatriated overseas. Here at least Jersey’s dependency of Luxembourg for private equity and collectives access to the EU does have some degree of ‘ring-fencing’ us from a London outside the EU.

Ultimately the biggest threat to Jersey and the Channel Islands is anything that compromises our future access to the free movement of trade and labour. Will the UK negotiations with the EU, post-Brexit, include us? Will it consider our interests parallel to theirs? Probably not, on both counts.

“Mr Geoff Cook might have to get those trainers on quickly if we are to be as fleet of foot as he proudly claims. We will be in a lonely position in Europe having to aggressively protect our interests on a pro-active level in which we will look to our External Relations Minister; Sir Philip Bailhache, to use his diplomatic skills to look out for us all. 

“If Brexit is successful the Prime Minister will have to smash the glass and press the big red Article 50 button to get the process of full-exit under way which could take up to two or three years to fully achieve and in that time Jersey will have to assess how closely to piggy-back on the UK’s drift into the metaphorical mid-Atlantic; or keep a strong rope attached to the continental mainland. Let’s hope good sense prevails in the UK.”