UK Edition
Delays to Brexit could turn UK into ‘zombie member’ of the EU, says HSBC
A long, slow departure from the European Union could mean other members treat the UK as a “zombie,” as Britain is forced to obey EU rules but has less influence in setting them, according to HSBC’s chief economist.
Stephen King said that the UK is currently in an awkward position as it awaits a plan to trigger Brexit formally, which would lead to a deterioration in relations between the countries.
“The problem is if the rest of the EU treats us as a zombie member, the living dead, [as if we are] there but not really there, the person who has turned up to the party but was not on the guest list,” Mr King said in a presentation to HSBC’s commercial banking clients.
As that poisonous atmosphere persists, “the terms of the divorce may deteriorate.”
Formal negotiations have not yet started and are only expected to begin once the UK triggers Article 50 of the Lisbon Treaty, kicking off the exit process.
Incoming Prime Minister Theresa May has promised to fully commit the UK to Brexit, but no start date is yet known.
It is thought that she may wait until she has a full plan of action as well as a stronger civil service negotiating team in place before triggering the process.
At the same time the political scene in the remainder of the EU may change, as a series of elections in countries including France and Germany take place, as well as other votes such as Italy’s referendum on constitutional reform.
While conventional wisdom expects the EU to be tough on the UK to act as a warning to any other nation which considers leaving the Union, Mr King believes other forces may also be at play as “populist campaigns” gather pace.
“They [other leaders] recognise there are pressures within their own economies and political environments to try to shift the argument to a more populist [agenda],” he told HSBC’s clients.
“It is tricky – do they try to punish the UK, or does that advertise to their own people that the EU has become more of a straightjacket than an opportunity for more trading?”
The chief economist also acted to reassure corporate customers that the vote brings opportunities – such as a lower pound which helps exporters – and not just threats.
“It is definitely not Armageddon, but it is a story about uncertainty,” he said, noting that “uncertainty is the kind of thing which delays business decisions.”
Mr King also predicted a 0.25 percentage point cut in interest rates is likely at the Bank of England’s monetary policy committee’s meetings either this month or in August, chopping rates from 0.5pc to 0.25pc.